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Plan your superannuation balancing act very carefully

If you hoped you could relax having paid your income tax at the end of January then think again, says Dr John Couch

If you hoped you could relax having paid your income tax at the end of January then think again, says Dr John Couch

The timetable for the first superannuation balancing payment is rapidly approaching and you must get the amount, cash-flow and timing right. (Associate/salaried GPs are unaffected by this as their payments are made in real time by their employing practice, based on actual salary paid.)

The new scheme

The new scheme started from the 2004/5 tax year. NHS superannuation payments are now based on NHS profits and, as this calculation cannot be made until the end of a practice accounting year, an estimate is made in advance. Equal monthly payments are deducted by the PCT during the year in question, based on a practice's estimate of NHS profits, with a balancing payment (or deduction) made once the final profit is agreed.

The whole process takes around 12 months from the accounting year end, partly due to the normal timelag in producing the accounts.It is also important to remember the deductions are now based on 6 per cent employee and 14 per cent employer contributions. The latter is now included in GMS and PMS payments, covering the majority, but not all, of GP payments but not all NHS payments (GPSI work being a good example). Therefore any balancing payment will be based on a 20 per cent figure.

The timetable

1 April/May 2005. Practices gather their accounting details for the year 2004/5 and give them to accountants.2 September/October 2005. Accountants send draft accounts to practice for agreement and signing.3 October/November 2005. Accounts agreed and formal copies sent to each partner.4 February/March 2006. Certificate of superannuable profit completed by accountants, agreed by practice and sent to PCT.5 April 2006. Certificates agreed by PCT.6 April/May 2006. Practice makes balancing payment to PCT.

Practices with different year-ends will have their payment calculated from the accounts including April 2004 onwards. There are complicated rules governing how an annual profit figure representative of the period from April 2004 should be reached. The timetable from step 4 onwards is the same.

How much are you likely to pay?

Your accountants should have included a superannuation figure in the relevant accounts. This will be broken down into figures for each partner. The figures will differ, partly due to varying sharing ratios and prior shares such as seniority. However, many practices will have noticed there are also large variations between some partners on similar sharing ratios.

This has arisen because there is a limit on how much can be paid into the NHS superannuation scheme for those who joined the scheme after 14 March 1989. The limits are £102,000 for 2004/5 and £105,600 for 2005/6.As nGMS pushed income above £100,000 for many GPs from 2004/5 onwards, this has affected many younger GP partners' superannuation payments.

It is hoped that from April 2006, the A-day pension changes will remove this limitThis fact has also had a distorting effect on partners' capital account balances with those partners paying less superannuation having higher balances available for distribution, a little comfort for being unable to maximise NHS pension payments.

Do you have the money?

Practices should have kept funds available in the practice account. Check yours now to see if this has been done. You must also check that your cash-flow for the payment month will not be affected.

As you can see from the timetable, payment date is set for April/May 2006. It may seem that this coincides neatly with the 2005/6 QOF balancing payment. However, you must remember that the balancing payment is 2004/5 money not 2005/6. If your cash-flow is tight and you have allowed for, but not yet made, your 2004/5 partners' current account distribution, then recalculate now, making allowance for the superannuation balancing payment.

If you have already made a distribution, and cash-flow is tight, you may have to take the unpopular decision to ask partners to put money back into the practice account! Alternatively you will have to use QOF money, but you should discuss this with your accountants first.

Consider paying early

It may seem madness to consider paying the balance early: however, there are tax advantages. You may be aware there have been problems getting tax relief on the employers' element of the superannuation payments. It is hoped these will be resolved soon. But the HM Customs and Revenue is clear that tax relief on superannuation can only be given in the tax year that payments are made.

Therefore, if you make your 2004/5 balancing payment on April/May 2006 it will not count for tax relief in the 2005/6 tax year and you will wait until January 2008 (balancing tax payment for 2006/7 tax year) for the relief to apply. If you physically send your cheque to the PCT before the end of March 2006, with your superannuation certificate, then this will count as a 2005/6 payment with tax relief applicable a year earlier.

This is likely to represent several thousand pounds improved cash-flow for the average practice. Technically the PCT has to agree the certificate, in April, before crediting the payments to the NHS Pensions Agency. However, if you have a competent accountant, the certificate and payment should be accurate.

Are your 2005/6 payments on account correct?

While you are in superannuation mode, check this year's payments too. Few practices were aware of the limits on payments affecting some partners for 2004/5 and 2005/6 until recently. Also, as 2004/5 was the first year of the new scheme, payments on account were very much estimates. Your last set of accounts should have presented a much clearer picture.

Your accounts did not arrive until around two or three months ago. Did you act on them with regards to 2005/6 superannuation payments on account? It is likely the estimated superannuation payments you have been making monthly, and their individual partner allocations, are not accurate. Double-check with your accountant if you are not sure.

Let the PCT know as soon as possible of any errors in the total amount and individual credits so that these can be amended now. It will be much more complicated to adjust these in a year's time and once again, if you are under-paying, tax relief on the difference will be delayed 12 months.

In future years balancing payments should be lower as accountants get used to the rules on forecasting NHS profit. But it will still be vital to liaise with them, provide accurate information to the PCT and to check individual partner payments are as exact as possible. Finally, remember to check that the NHS pension scheme individual limits are actually changed from April 2006.

John Couch is a GP in Ashford, Middlesex


Richard Snoxall, a partner in Rowland Hall, chartered certified accountants, of Grays, Essex, writes:The new superannuation scheme has proved to be a steep learning curve for GPs and their accountants. The late publication by the Pensions Agency of the final certificate (just before Christmas) has not helped; nor has a decision by HM Customs and Revenue (still being challenged) that the 'employer' contribution should be a pension deduction on the tax return rather than a deduction from practice profits.

As a result of this, many GP tax returns submitted early may be technically incorrect and require repair in due course.A six-partner practice we act for in the South-East has additional superannuation liabilities to settle of around £35,000. This includes added-year liabilities for two of the doctors as well as the 20 per cent.

The local PCT has confirmed that the certificates will be processed and payment collected in March which will ensure tax relief for 2005/6.For partnerships such as the above with numerous sources of NHS and non-NHS income the calculations can get quite complex. A wish-list for the future must include some good software not just for preparation of accounts under nGMS but in particular for the complicated superannuation certificates.

The novelty of preparing these manually has worn off already!

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