When a GP becomes a partner, there is a fundamental change to their status as they become self-employed and, instead of a salary, receive monthly drawings (advances) on their annual profit share.
Taxed as self-employed
As a partner they become fully responsible for paying tax under the self assessment system - the practice accountant can explain how this works and what expenses and tax relief can be set off against tax bills.
Deductions under PAYE from their pay for tax and Class 1 National Insurance contributions (NICs) will cease. Instead a partner pays Class 2 and, on their profit share, Class 4 NICs.
The incoming partner should obtain copies of the last few years' practice accounts and have them reviewed by an independent accountant to determine the practice's financial stability before joining.
They may be asked to buy a share of the surgery if the other partners own it. Agreeing on the value is crucial and it is worth seeking expert advice about this. The incoming partner should also review the liabilities section in the accounts: all the partners are jointly and severally liable for partnership debts (although not for each other's tax liabilities).
The new partner will be asked to sign a partnership agreement which will contain amongst others things, the profit-sharing ratio and drawings patterns. For example, some practices hold back money from the partners' drawings to cover their self-assessment tax bills, while others pay full drawings to the partners who are then expected to save up for their tax.
Under both methods the individual partner is responsible for their own tax concerns.
A GP partner contributes to their NHS pension under the rules for practitioners which are different from those for salaried NHS doctors. Seeking advice from a specialist medical financial adviser may be helpful.
- Simon Gray is a partner with Henton & Co LLP, specialist medical accountants www.hentons.com.