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A financial new year's resolution

After a festive season of goodwill, ring in 2009 with a pledge to sort out your taxes, advises accountant Bob Senior

After a festive season of goodwill, ring in 2009 with a pledge to sort out your taxes, advises accountant Bob Senior

At the start of a new year one resolution that all GP practices should make is to ensure that they do not fall foul of HM Revenue & Customs.

That can happen in a variety of ways but the recent season of goodwill is particularly prone to mistakes when it comes to the treatment of staff gifts or bonuses.

Sadly HMRC starts from the position that all gifts to staff may be taxable; precisely how and to what extent depends on the type of gift and the income level of the recipient.

Straightforward money or gift vouchers are most troublesome.

These are taxable in all circumstances with the usual way to deal with these being to gross the value of the gift up and put it through the PAYE system as part of the employee's pay.

Obviously grossing up a gift in this way adds significantly to the cost, a net gift of £100 to a typical basic rate taxpayer actually ending up costing more like £160.

For employers making non-cash gifts, it is possible to use a PAYE settlement arrangement to pay the tax and NIC over to HMRC on a composite basis.

Those practices that fail to deal with bonuses and gifts correctly may not be picked up unless they receive a visit from HMR by way of a PAYE inspection.

Such a visit is preceded by a fairly innocuous letter making reference to "checking employers and contractors records", which gives the impression that the visit is merely to check the payroll records.

Be under no illusion - although the visit will indeed include a look at the payroll, its main objective is to find any instances where things have not gone through the payroll system.

The inspection will therefore cross check the payroll system with the practice's other financial records.

Locum employment

Whereas the incorrect treatment of bonuses is fairly easy to pick up and sort out, other things may not be so straightforward.

The question of locum doctors needs to be considered carefully.

For example, taking on a locum doctor rather than a salaried GP in order to avoid employment legislation and the extra cost of taking on an employed doctor will not necessarily mean that HMRC will accept them as being self employed.

The revenue's view is that they will generally accept the traditional locum role where it follows the model of the locum standing in for an absent doctor.

The key is ‘absent' - either due to sickness or a planned absence such as holiday or sabbatical.

The cover can be for reasonably long periods, such as in the case of maternity cover, but particular care needs to be taken if the period exceeds six months.

Things become fairly tricky where a regular locum is used to provide additional doctor time in the practice rather than taking on a salaried doctor.

Although a long-term locum arrangement may suit both the doctor and the practice for a variety of reasons - including from the practices perspective that it avoids them paying national insurance and employers' superannuation - HMRC will look beyond the commercial agreement to the actual nature of the role to form their own view on whether or not the individual is actually an employee.

If they rule than an individual should have been treated as an employee, the financial cost to the practice can be very severe.

Fortunately HMRC has provided an online Employment Status Indicator to help you establish whether someone should be treated as self employed or employed.

That can be found on the HMRC website at www.hmrc.gov.uk/calcs/esi.htm.

If that tool is used honestly and shows that an individual can be regarded as self employed then keeping the result on file should support a practices case if it is ever queried in the future.

Bob Senior is vice-chair of the Association of Independent Specialist Medical Accountants and director of medical services at Tenon, the UK's third largest medical accountant

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