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For all sorts of reasons this has been an extraordinary year for GP finances. Because of this Dr John Couch believes your accounts need to be dissected carefully and certain aspects accorded very special attention indeed

The majority of practices have a financial year-end of 31 March, and their draft accounts for 2004/5 have been arriving in recent weeks. The new GMS contract, the quality framework, enhanced services and the new GP superannuation scheme all started on 1 April last year, making this an extraordinary year. Your accounts should reveal exactly how extraordinary, and while all areas of the accounts will need to be dissected in the usual way, there are certain aspects that must be afforded very special attention.

Have profits increased?

This is the most obvious way to gauge your success. Over the previous year, net profit for most practices increased by an average of 20 per cent. This figure may disguise a mixed picture. Look further at the breakdown of NHS income. GMS practices must look particularly at their core GMS budget or MPIG. How did this compare with old GMS?

Figures for the QOF are already well-known, but the accounts also give the opportunity to see in black and white how much – or how little – was earned from enhanced services. This may provide a stimulus to re-examine your current strategy.

Due to new contract rules, many practices started to employ associate GPs during 2004/5, whether through choice or necessity. The accounts provide an opportunity to examine the financial impact of this. Obviously staff expenditure will have risen, but what has been the effect on individual partner's net profit? Once again this may provide food for thought regarding your future plans for medical manpower.

How have your expenses performed relative to income?

To succeed in 2004/5 most practices increased investment in staff and equipment. Your accounts can show the scale of this. The largest increase will almost certainly have been in staff costs. Some of the increases will have been on new staff but many will have been on extra hours for existing staff, as many practices have beefed up data entry and nurse-led chronic disease clinics.

It is important to check your accountants have provided separate figures for associate GPs and other staff to allow better comparison with previous years. One key factor is income per £ of staff cost. Ideally you want to see that this has increased over the previous year and also that you have performed better than average against other practices. An average figure is £3.80 per £ of staff costs.

Most accountants advised caution with drawings during 2004/5 and generally practices heeded this. Indeed there was little choice as much of the extra income arose from the QOF and the bulk of this money was not received until April/May of the next (2005/6) financial year!

Your accounts should therefore show the largest current account balances ever.

The partners' current account balances show how each partner's share of all income vs drawings, superannuation and other relevant deductions has been handled during the year. The previous year's balance is also factored in. It is normal practice to distribute most or all of this once the accounts are agreed, less any agreed extra running costs or expenditure for the new financial year.

Great care needs to be taken this year. In most cases an extra drawings distribution will have been made once the final QOF payment arrived. Practices that use cash-flow forecasting may have already spotted the large surpluses and increased drawings as a result. Also, for the first time the current account balances will only contain an estimated figure for superannuation rather than an exact one. For the same reason there may be larger differences between individual partner's balances than in past years.

What this all means is that if extra distributions are made to partners in line with the figures in the accounts, there is a risk of inaccuracies and even incurring a bank overdraft! It would be wise therefore to let your accountants know your drawings and distributions from the start of this new tax year and ask them to recommend a safe level of individual distributions. It may be that an extra distribution can also be made once superannuation certificates have been signed over the next few months. It is also possible you have been so prudent that you can now increase regular drawings.

How much extra superannuation is due?

As GP principal superannuation is now based on NHS profits, monthly (or quarterly in some cases) payments from 1 April 2004 have been estimates. A balancing payment cannot be made until your accounts and NHS profits are agreed and individual superannuation certificates signed. As this will be the first run through of the balancing payments system, there will inevitably be delays until final figures are agreed and payments made.

Remember also that we are still supposedly sitting on the employers' 14 per cent contributions. This means we shall pay 20 per cent (employee 6 per cent plus employer 14 per cent) in the extra NHS profit for 2004/5 not yet superannuated. Depending on how accurate or inaccurate your estimated payments were, the balancing payment could therefore be relatively small or large.

The notes to your accounts should provide a provisional figure but there will be changes in many cases. This raises two issues. First, make sure you note the provisional figure and ensure you have adequate funds to cover payment. Second, assuming some partners' finalised figures may differ, this may affect the partners' current account balances as above.

The same problem will occur every year from now on so it is worth discussing a strategy with your accountants.

Be prepared for January 2006 tax payments

While your accounts should have made pleasant reading this year, the section in the notes advising tax payments will certainly be a nasty shock. As self-employed taxpayers, GP principals pay tax twice yearly. The January 2006 payment will be for half the estimated tax for 2005/6 and the balancing payment for 2004/5, both based on your increased profits for 2004/5.

You will therefore find you face a much larger tax and class 4 national insurance payment. Increases in the order of 50 per cent over January 2005 payments will not be unusual. Most GPs will need to make extra provision.

By saving regular amounts over the next four months you can get some way towards this. For the balance? Well you had to spend your QOF profits somehow!

Most accountants now provide comparative statistics as part of the notes to the accounts. These should be very revealing this time as you will be able to compare your performance with those of other practices.

You would be wise to spend some time over this section as a way of analysing your financial strengths and weaknesses in year one of nGMS.

Now that the framework for GP finance has been set in place for the next few years, the way to increase profits further will be to address areas of both income and expenditure in which you underperform as well as building on those in which you do well. Pay particular attention to other practices figures for income/expenditure ratio, income per £ of staff costs, enhanced services and private income.

Springboard for action

After a successful year it is vitally important to avoid complacency. Consolidate by all means, but learn the lessons from these accounts carefully and take appropriate action. Whether your issues are income generation, staffing, equipment, drawings levels, estimated GP superannuation payments or tax savings, do something now. These accounts provide you with a unique springboard for the future.

John Couch is a GP in Ashford, Middlesex

CRUCIAL ISSUES

• For GMS practices, how did this year's core budget or MPIG compare with old GMS?

• For all practices, consider how much you have earned from enhanced services

• Consider the financial impact of employing associate GPs

• Consider how rising staff costs have affected profits this year

• Note that for the first time current account balances will only contain an estimated figure for superannuation

• Note that there may be larger differences between individual partners' balances than in past years

• Let your accountants know your drawings and distributions from the start of this new tax year

• Ask them to recommend a safe level of individual distributions

• Compare your performance with that of other practices

• Avoid complacency – take any action needed now

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