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Ask the experts: What happens to superannuation contributions for a GP working under the 24-hour retirement rule?

Jenny Stone explains how a partner taking 24-hour retirement and not making superannuation contributions can take higher drawings.

QUESTION: I am 63 and working three days a week in general practice. I took my pension at 60 and returned to work under the 24-hour retirement rule.  I no longer pay superannuation contributions. I was given to understand that the CCG, however, still pay its superannuation to the practice. Our accountant has advised that since ours is a PMS practice the contributions are ‘in the pot’ shared between the four partners but that it can’t be identified. Is that correct or should it be coming to me personally? 

ANSWER: Under the old contract GPs paid their employee superannuation contributions and the PCT as their ‘notional’ employer paid the employer’s contribution on their behalf. When the new contract was introduced in 2004 the way superannuation was calculated changed to being based on NHS profits. As it was expected profits would increase, the government decided to make the partners responsible for the employer’s contribution. 

Funding was given in practices’ global sum equivalent and PMS baseline based on the historical cost of the employer’s superannuation. The QOF and enhanced services income also included an element of funding towards the employer’s 14%.

HMRC issued guidance to state that deductions for employer’s superannuation were not a practice expense but should be treated in the same way as the employee’s contribution. This means the deductions for employees’ and employer’s superannuation should be treated as the individual partners’ cost as part of their drawings.

The practice income includes funding to pay for the employer’s superannuation - it is shown in the profit and loss account and is included in the overall net profit. The profit will be allocated to the partners based on the normal profit sharing ratios.

This means that each partner has a share of the income to fund employer’s superannuation in their profit share to pay towards the cost of their actual employer’s superannuation.

If a partner takes 24-hour retirement and returns to work, there will be no change to the global sum, QOF and so forth and they will still receive their share of this income. However, as they will no longer be paying superannuation they will be able to draw this income out of the practice.

Partner’s drawings are calculated as their share of profit, less superannuation and tax (if the practice pays). If two partners share profits equally, but one pays superannuation and the other does not, their individual share of profits will be the same however the partner who does not pay superannuation will be able to draw more of their profit out of the practice. The illustration below shows how this works.

  Dr A Dr B
Share of profit 150,000 150,000
Employee's Superannuation 0 (11,000)
Employer's Superannuation 0 (18,000)
Profits available to draw 150,000 121,000
Drawings Per Month 12,500 10,085

The partners still earn the same amount of income, which is their share of profits of £150,000. The key difference is that Dr A no longer pays superannuation. Therefore, to ensure that each partners’ current accounts are equal, Dr A should take higher drawings.

 Jenny Stone is a partner at specialist medical accountants Ramsay Brown & Partners

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