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When £70,000 is really £80,000 (or £79,800!)

Accountants are sometime described as inventive and creative, as well as the usual comments concerning dark corners and parties. However, as an experience this week shows, some playing with figures is needed to ensure a new partner gets what she was expecting.

This particular GP called me with a simple question; she was moving from a salaried post in her practice to a partnership, and she wanted to know what percentage of her income should be retained by the practice for superannuation and tax.

However, what came out of the conversation was a much more important point.

The GP explained her position as follows:

- She has worked in this practice for a number of years as a salaried GP on a salary of £70,000.

- The practice have now decided they needed to increase the number of partners in the practice and offered her a partnership.

- The deal they concluded was that in year 1, the new partner would get a fixed share of profits at the same rate that she was earning as a salaried GP, ie a profit share of £70,000.

I pointed out that there is a potential problem caused by the effect of superannuation.

It is generally accepted and understood that salaried GPs have to pay the employees superannuation on their salary, (currently 7.5% at a salary of £70,000). GP partners, however, since 2004 have to pay both the employees and employers superannuation on their profit share. There is a very clear statement on the HMRC website on how the employers superannuation works.

So, I explained to this GP,  moving from a salaried post with a salary of £70,000 to a partnership with a fixed share of £70,000 make you worse off by £9,800, the employers superannuation at 14% on the profit share.

The solution to this, is that the partnership have to increase the fixed profit share to reflect the employers superannuation. Accordingly, the fixed share has to increase to £79,800 to leave the GP in the same position as if they were still salaried.

The GP is going to resume negotiations with the practice.

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