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Premises shares

Q: The partners' shares in the surgery are not the same as our profit shares as these were not altered when the partners changed their hours. We divide the notional rent in the premises shares ratio and do the same with the interest on a small surgery loan, which we have reduced by making a capital repayment from partnership profits. The building's running costs are also paid out of profits. We have received a grant to build an extension for which we will not get notional rent because of the grant. Premises upkeep costs will be higher. Our accountant says it is not possible to value the old and new parts of the building separately. What would be a fair way of handling this situation for all partners?

A: Where profit shares and building ownership shares are the same, you can get away with having one partnership account and not having to split benefits and responsibilities between the premises and the practice.

But as soon as either the partners change or their shares start to differ, there needs to be a strict division between what relates to the premises and what does not - and there should be a separate premises (or property) section in the annual accounts.

The premises account should show the notional rent and rates reimbursement as income. Rates payments, loan interest, buildings insurance, structural and external repair and external decoration would be shown as expenses.

The partnership should be regarded as 'tenants' responsible for the general running costs of the practice to include all utility charges, internal repair and decoration - all costs not allowed for in notional rent.

It follows that if capital repayments on the loan are made out of practice profits, you need to be able to track them from the practice to see clearly how the capital repaid should be apportioned between partners in the premises account.

Your accountant can explain the detail. Any grant funding should be credited to the premises account.

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