The introduction of the Tax Health Plan has made it clear that H M Revenue & Customs have got GP’s clearly in their sights. They have identified medical practice as a high risk area.

As a measure of our concern about the increased frequency and cost of tax enquiries, we have set up a service to protect GP’s from the potential costs of professional fees that would be incurred in the event of a dispute with the tax authorities.

If a GP receives a notice that H M Revenue & Customs intend to look at any aspect of their affairs, we will deal with the matter to ensure that the outcome is as favourable as possible.

However, even if the result is that no extra tax is payable, there will still be significant additional costs to meet.

We therefore recommend that all our GP clients take up our Tax Protection Service which covers professional fees incurred in handling a dispute with H M Revenue & Customs.

For an annual subscription the scheme will enable us to dedicate as much time as necessary to get the best result for the GP.

If you would like more details of the service, please contact us.

Our clients expect us to provide a timely, pro-active, cost effective service. To do this we expect our clients to:

• Provide us with information by dates previously agreed
• Provide information without the need for too many reminders.
• Keep us informed of any significant developments in their personal financial affairs.
• Let us have changes in tax codes as soon as possible.

Findings of recent tax case – Samadian V RCC

Whether an expense is an allowable deduction for tax purposes is dependent both on the tax legislation, but perhaps even more importantly by how this legislation is interpreted by the Courts.

In January 2014 the decision in a case regarding a doctor’s travel expenses was released.

The Samadian case relates to travel expenses and whether these were incurred ‘wholly and exclusively’ for the purposes of the business.

Prior to this decision being released there was a degree of uncertainty regarding which journeys undertaken in the course of business were allowable for tax purposes.

It has been a long established rule that any journeys from a person’s home to a permanent place of work are not allowable expenses for tax purposes. Many medical professionals, and among them Dr Samadian, however, have more complex travel arrangements. We have summarised the findings of the Samadian case above in a picture format to make it easier to follow.

Dr Samadian is employed full-time by the NHS at two hospitals in South London (St Helier and Nelson). In addition, he holds weekly out-patient sessions at two private hospitals (St Anthony’s and Parkside) and has private patients admitted to St Anthony’s where he performs ward rounds six days a week. He has a dedicated office at his home, where he keeps his private patient records as well as his business records, his medical equipment, prescription pads and his medical reference books.

Findings:

• Home to private hospital travel – there was ruled to be a dual purpose to Dr Samadian’ s travel between his home and private hospitals and therefore these travel expenses are not allowable.
• Home to place of employment – the court confirmed that this travel had a non-business purpose (ie to maintain his employment) and therefore this travel is not allowable.
• The court also found that the journey between his place of employment and private hospitals was not allowable.
• Travel between the two private hospitals was found to be allowable.
• Travel between the private hospitals and another care location (eg the patient’s home) is allowable.
• Travel between the home office and another care location is also allowable travel.

As a GP there are two methods available to claim motor expenses.

• Method 1 – the first method is to claim a mileage rate of 45p a mile for your business miles, reducing to 25p per mile after 10,000 miles.
• Method 2 – the second method is to keep records of all your motor expenses for any vehicles that you use for your business and claim the business percentage of these costs. If you use this method you can also claim for something called Capital Allowances, which is effectively an allowance for the wear and tear on the vehicle.

Method 2. So for example, if you used your car 50% for business and 50% for private use you could claim a tax deduction on the costs as detailed below:

Example

Please note that the mileage from your home to the surgery will be considered by the Revenue as private mileage and not business mileage.

Capital Allowances

You can also claim capital allowances on the cost of the car. The rate of capital allowances you can claim is dependent upon the CO2 emission level of your vehicle. The amount you can claim can range from 100% to 8%. A 100% capital allowance claim accelerates the available tax relief.

To qualify for 100% First year capital allowances, there is an upper CO2 emissions limit of 95 g/km which extends up to 5 April 2016. The car must be bought new. There is a wide range of vehicles including many luxury vehicles. For a sole trader with a top rate of tax at 40% who would use the car with 50% private use the following tax savings would be made:

Based on a Volkswagen Golf 5 Door 1.6 TDI blue-motion 110 PS rated at 85 g/km.

Purchased in the 2014/15 Tax Year

Approximate price £20,000

Capital allowances claim £20,000

but restricted to 50% business use therefore tax relief £10,000 at 40% tax plus 2% NIC.

Tax saving in year of purchase £4,200.

This means the after tax cost of the vehicle is an effective £15,800.

The following web-link shows the current 285 vehicles that qualify.

http://comcar.co.uk/advanced/selector/profiles/FirstYearAllowance?clk=1

The cars that qualify for 100% Capital allowances has increased over the last couple of years, previously only micro-cars qualified.

If you are buying a car which you are using mainly for business and doing a large amount of business miles, then method 2 usually gives a higher tax relief.

How We Can Help

In both method 1 and method 2 you need to know the level of your business mileage. We ask clients to keep mileage records to enable us to do calculations for both methods. We determine which method is best for you and therefore help keep your tax to a minimum.

Do you have a partnership agreement? If so, have you reviewed it lately?

If your answer is NO then it may be time to conduct a review.

Why bother to have a partnership agreement? Well, without one the partnership is governed by The Partnership Act 1890 and you have a ‘partnership at will’, the implications of which are:

• All partners share equally in the partnership income.
• All partnership decisions need a unanimous vote.
• One difficult partner could hold the partnership to ransom.
• Termination of the partnership can be enforced simply by one partner issuing a notice to the other partners.
• Such a notice could force the sale of partnership assets and the redundancy of staff.
• The creation of a new partnership, following dissolution, may require the PCT’s approval ….. and these events do happen!

With an agreement you can:

• Ensure protection for the financial interests of each partner
• Reduce the risk of acrimonious partnership disputes
• Set agreed rules for the appointment and retirement of partners
• Set out the circumstances leading to the suspension of a partner

Remove governance by the Partnership Act 1890 – remember! all partners are jointly and severally liable i.e. each partner is responsible for the actions of his/her fellow partners

Any partnership agreement should be prepared in consultation with an accountant and a solicitor to ensure that all legal and tax issues are addressed.

We have helped many GP’s taking the step from a salaried or locum position to that of GP principal. Help and advice in this area at this time can be invaluable. Salaried or locum GP’s may find it difficult to fully understand a set of surgery accounts. They may find it difficult to know whether the partnership agreement they are being asked to sign is fair.

For example, should a new GP expect parity of profit share immediately or is it reasonable to achieve parity over a period of time? There are many areas in which a new GP principal may need advice:

• If the practice owns the surgery, should the new GP borrow money to own a portion of the building?
• What are ‘prior shares’ of profit and how do they effect the new GP?
• How is seniority apportioned between the partners?
• Does the new GP understand that they will now bear the cost of the 14% employer’s superannuation contributions as well as employee superannuation contributions?
• Who will bear the costs of professional fees and subscriptions?
• What is the holiday entitlement?
• How much will the GP principal earn compared with the sessional rate paid to a salaried or locum GP?
• The list of questions can be lengthy.

How We Can Help

We often review the accounts of GP practices on behalf of salaried or locum doctors before they take up positions as GP principals.

We ensure that our clients fully understand the financial implications of becoming a GP principal.

Not having such an understanding is the equivalent of accepting an employed position without knowing what the salary is!

How Much Does a Salaried GP Earn in Comparison with a GP Principal?

This is a question our GP clients often ask. The answer is often complex.

Superannuation

One important point which is often overlooked is that a salaried GP does not bear the cost of the employer’s 14% superannuation contribution. By contrast a GP principal does.

The fees and allowances received by a GP principal can include an amount to compensate the GP for having to pay the 14% employer’s superannuation contribution as well as the employee contribution.

Therefore, in comparing the gross salary earned by a salaried GP with the profit earned by a GP principal, it is necessary to adjust the GP principal’s profit to take account of the additional 14% employer superannuation contribution which has to be paid out of the GP principal’s profit.

Other Matters

Other matters which need to be taken into consideration would include:

• The number of clinical and administrative sessions which will be worked.
• Entitlement to holiday.
• Who would bear the cost of professional fees and subscriptions?
• Who will bear the cost of locum insurance?
• The comparative profitability of the practice.
• The financial stability of the practice.
• My expected income as a GP principal.
• A comparison between my expected income as a GP principal and my current income.
• Drawings levels at the practice.
• Superannuation costs.

How We Can Help

We help our clients understand all aspects of this comparison to ensure they are able to make an informed decision before joining a practice as a GP principal.

Many medical practices will not need to consider VAT as the majority of services provided by a GP are exempt from VAT. However, not all services are exempt and GP principals should periodically review the level of these services.

Services Exempt from VAT

Services are exempt from VAT where those services are principally aimed at the protection, maintenance or restoration of the health of a patient. These are the principal services offered by a GP practice.

Services Subject to VAT

Services which are subject to VAT are those where the principal purpose of the service is the provision of information to a third party to enable that party to take a decision. Some of the services which are subject to VAT are the following:

• Certificates/reports. A certificate or report may be subject to VAT or exempt. The dividing line is often difficult to pin down. Reports enabling claims to compensation, benefits or registration as a blind person are all subject to VAT.
• Dispensing of drugs for dispensing practices.
• Fitness certificates as part of an individual taking up a particular professional or sporting activity.
• Cosmetic services undertaken purely for cosmetic reasons.
• A forensic statement or report.
• DVLA medicals.
• Medico-legal work such as medicals, reports and expert witness testimony for the judicial system.
• Pre-employment medicals.

If your GP medical practice is carrying out any of the above services or any other services that do not qualify as exempt from VAT and the total value of the services exceeds the current limit of £82,000, the practice will need to register for VAT.

How We Can Help

We help our GP clients by reviewing their income regularly and advising on any VAT liability.

Many locum doctors will often have at least two sources of income. It is common for locums to have:-

• Self-employed locum income.
• Salaried income from a hospital, PCT or doctors surgery.

Both these sources of income are liable to national insurance contributions (NIC’s). A locum doctor will pay NIC’s on their self employed income as well as NIC’s on their salaried income.

There is, however, a maximum amount of national insurance contributions which any individual tax payer has to pay in any year. Often a locum doctor will have paid the maximum national insurance contributions due on their self employed income alone.

However, it is not uncommon for this point to be missed by an inexperienced or non-specialist accountant. If the accountant does not request that the national insurance contributions are refunded, the locum doctor will pay more national insurance than is due. The Inland Revenue has no procedure to prevent this from happening and it would not be unusual for a locum doctor to pay £1,500 per annum in unnecessary contributions. The locum doctor receives no additional benefits for these additional contributions.

How We Can Help

One of the first things that we will do when appointed to act for a locum doctor is to check what national insurance contributions are being paid. If the contributions have been over paid in the past, we are able to reclaim the overpayment. For many of our locum doctor clients we obtain significant refunds of national insurance on an annual basis.

Auto enrolment is the new compulsory pension scheme for employers (including GP practices) being introduced for many practices during 2015 and 2016.

You may think that as your clinical and ancillary staff are now able to join the NHS Pension scheme you will not have to bother with auto enrolment. This is not the case.

Depending upon your specific circumstances, GP practices may have to open an ‘auto enrolment’ pension scheme and offer staff the chance of joining their scheme.

How We Can Help

• We can look at your circumstances and tell you if you are exempt from auto enrolment.
• If necessary we can help you set up an auto enrolment scheme.
• If necessary we can help you with the relevant administration.