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To new partners, the concept of the individual current account balance within the partnership accounts is often difficult to grasp. Dr John Couch sheds light on the problem

The individual partner's current account balance within the partnership accounts is invariably a difficult concept for a new partner to grasp. And due to the combined effect of large profit increases, following the onset of nGMS, and changes to GP superannuation rules, the balances in the 2004/5 accounts are likely to be more confusing than usual, even for more experienced partners.

It is, however, very important to take the correct action once your accounts have been agreed or you will face an ever increasing accounting tangle in subsequent years.

Partners' current accounts are virtual, in that they do not exist as separate accounts with the partnership bankers. They are a financial year tally of each partner's credits and debits, using existing profit shares. Primarily they ensure that profit is shared exactly as stated in the practice agreement providing a method, after the year-end, to share out any profit balance and clearly demonstrate equity.

The table at the end of the article gives an idea of how a 2004/5 current account balance may appear for a fictitious GP.

Balance at 1/4/04 This partner's balance of profits due from previous financial year as per 2003/4 accounts.

Profit for year Partnership net pooled profit multiplied by this partner's agreed profit share plus agreed prior shares such as seniority.

Cash introduced Money paid into partnership for non-capital items, in this case fees associated with property purchase.

Capital introduced Money paid for purchase of partnership property. In this case part of a retiring partner's property share.

Transfer from practice capital account Would cover reductions in the partners' capital account requirement (money required to fund the business on a month to month basis.)

Monthly drawings Totalled for the whole year.

Other drawings Includes distribution of partner's current account balances from previous year and appraisal income (accountant usually shows exact breakdown separately).

Superannuation This shows standard, added years and now also employers' superannuation, the latter now paid by the practice from money added to PCT income.

Transfers to property capital account As above for purchase of extra property share. This amount should now be reflected on the property ownership page of the accounts.

Transfers to superannuation reserve account See below.

Transfers to practice capital accounts As above but covering any increases in partners' capital account requirements.

This will be a new line in the accounts. As GPs now pay superannuation based on NHS profits, these will not be known until the accounts are agreed and the appropriate certificate completed and agreed with the PCT.

GPs will have been paid monthly or quarterly amounts during 2004/5 based on estimated NHS profits. Most GPs will then make a balancing payment (few will have overestimated). It is unlikely that final agreement ­ and therefore final payment ­ will be made until April/May 2006, ie more than one year from the 2004/5 year-end.

The virtual superannuation reserve account allows the partnership to earmark the correct amount per partner and hold it within a partnership account until payment is required.

Note there will be differences in superannuation between partners. There are two reasons for this. First, superannuation for seniority and outside posts paid via the partnership account will be credited to the individual partner.

Second, profits per partner in many practices have now exceeded the £102,000 2004/5 earnings cap for pensions. Any partner who joined the NHS pension scheme after June 1989 will be unable to superannuate any profit above this amount. Partners joining before this date are not affected by the cap. This will also apply to 2005/6 profits but then from April 2006 the new 'A-day' rules will apply to all and allow increased payments.

As the table, and probably your own accounts, show, current account balances are particularly high for 2004/5. You will also notice there are quite large differences between partners, a fact that often puzzles new partners. Reasons for the latter include:

·Differences in prior shares (income that, by agreement, is earned/kept individually) such as seniority.

·Added years (not all partners have them, payments for those that do are age related).

·Superannuation payments and reserves.

Once you agree your accounts it is tempting to ask for your large balance. If Dr X were in a five-partner practice and all partners had similar balances they would withdraw £150,000. It is most unlikely that their present bank balance would allow this without going very overdrawn.

You must remember the accounts are drawn up on an accruals basis. This means they allow for income (debtors) and expenditure (creditors) belonging to 2004/5 but not paid until 2005/6. The largest debtor is the QOF balancing payment. If you made a one-off distribution to partners in 2005/6 based on the 2004/5 QOF balance then this must be deducted from current account balances.

In the same way, if instead of a distribution, you increased 2005/6 drawings above a reasonable estimate of net profits for 2005/6, to take account of money that technically belonged to last year's profits, this must also be deducted from current account balances.

Finally, if you have made or planned to make a large expenditure/investment based on your current bank balance this would also need to be taken into account.

If you are unsure what to set against the current account balances you must check with your accountants. Only when you have made allowance for the above should you then distribute the final agreed balances.

You should also review the current level of partners' drawings, particularly if your drawings are based on an estimate of profits for the current financial year. Most accountants are predicting an increase of 8-10 per cent in profits for 2005/6 so you could simply use last year's net profit figure and increase this accordingly. Alternatively, once again, check with your accountant.

Spending your larger-than-average current account balance should not present too much of problem as the Inland Revenue is likely to get the lion's share. As we all know, the tax payments due at the end of January 2006 include a balancing payment for 2004/5 and are extremely high.

In fact, one leading accountant has calculated that GP partners' likely pay increase from 2003/6 is likely to be around 46 per cent but more than half (53 per cent) of this increase will be accounted for by extra income tax, national insurance and superannuation.

It looks like GPs may fund Gordon Brown's huge shortfall in tax singlehanded this year with enough left over for a trip to the cinema and maybe fish and chips on the way home!

John Couch is a GP in Ashford, Middlesex

Current account

Partner Dr X 2004/5

Income £

Balance at 1/4/04 12,000

Profit for year 155,000

Cash introduced 300

Capital introduced 20,000

Transfer from practice capital account 0

Total income 187,300

Already allocated

Monthly drawings 98,000

Other drawings 12,500


Standard 6,000

Added years 2,000

Employers 16,000

Transfers to property capital accounts 20,000

Transfers to superannuation reserve

accounts 2,500

Transfers to practice capital accounts 0

Total already allocated 157,000

Current account balance 30,300

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