This site is intended for health professionals only

At the heart of general practice since 1960

How to prepare for when a partner retires

Don't let a partner's departure take your practice by surprise, urges accountant Rosemary Smith

Don't let a partner's departure take your practice by surprise, urges accountant Rosemary Smith

Often the only person thinking about the retirement of a partner is the partner concerned.

But it is the partnership that is going to be most affected.

So it is essential the practice understands the implications of the retirement and how it will be affected by the incoming partner, if there is to be one.

Discussions need to take place with the partner well in advance of his or her retirement.

Ideally this should be several years before the retirement; at the very least it should be the agreed notice given in the partnership agreement.

The terms on which a partner can take 24 hour retirement should always be included in the partnership agreement.

For example, the partnership may not want to re-engage a GP who is keen to return and work full time after the first month of retirement. Nor does it have to.

Once the retirement conditions for the partner leaving have been finalised, the practice must decide whether or not to replace that departing partner, and if so how.

It may wish to employ a salaried doctor or take on more specialised nursing staff.

However, if it wishes to employ a new partner full time it must start the process of recruitment – and must get it right.

Decide on the period of probation for the new partner.

Will he or she be receiving a percentage of the profits or a fixed share?

Consult the partnership accountant about percentages, how they are calculated, and what monies must be adjusted by personal retentions before the profit is split.

Cash flow

The accountant will be able to advise the practice about how to calculate the money that must be paid to the leaving partner.

Also how much money needs to be paid in by the new partner (many practices require an incoming partner to make a contribution to the practice - between £5,000 - £10,000 say).

One of the reasons a practice must have plenty of time to prepare for a partners' retirement is so it can have the funds available to pay out to the retiring partner, either by new funds being paid in by the new partner or, if the timing does not allow this, a temporary bank loan or overdraft being raised.

In all matters of payments to retiring and incoming partners it is absolutely essential that you liaise with your accountant.

Dealing with things like current accounts, superannuation certificates, etc is highly complex – and you pay your accountant to understand these things.

Advice needs to be given to the new partner, as often this will be the first time they have been self employed.

Advise them too that there are time penalties issued by the Government if they are not registered by the appropriate time scale and if the first tax payments are not made on time.

They might also need advice on how much money to put away for tax and on the timing of these payments. Also on the records they need to keep.

So remember:

• Make sure your practice has as much notice as possible of a partner's expected leaving date

• Ensure your partnership agreement covers all eventualities for partners' leaving or retiring

• Maintain a close relationship with your accountant and also seek advice at the earliest opportunity

• Look at the financial implications and go to the bank in advance to prepare any necessary funding

• In particular discuss profit share for the incoming partner with your accountant to ensure that the split is beneficial to the practice

• Help the new partner on all financial and administrative matters. This is a new venture for them and an early meeting with your accountant will benefit the both of you

Rosemary Smith is healthcare manager with Tenon, the UK's third largest medical accountant

Don't be taken by surprise by a partner's retirement

Rate this article 

Click to rate

  • 1 star out of 5
  • 2 stars out of 5
  • 3 stars out of 5
  • 4 stars out of 5
  • 5 stars out of 5

0 out of 5 stars

Have your say