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GPs should be receiving a substantial cash boost by the end of May this year, but don't spend it all at once, warns Dr John Couch

We will all have a keen sense of anticipation this April as our hard work on the quality framework comes to fruition. With the average practice forecast to earn 900 points, and two-thirds yet to be paid, each GP should receive more than £15,000 extra cash by the end of May. Sadly anyone who was hoping to buy a new car this year needs to take a deep breath.

They also need to take a wider look at business demands on their income. Instead of the smart new mini, you may have to settle for the version that's been around for donkey's years!

Superannuation balancing payment

Most accountants have already advised caution as there are specific items in 2005/6 that must be considered. The first of these is the GP balancing superannuation payment for 2004/5.

Under the new scheme, superannuation is paid on full financial year NHS profits. Average GP earnings for this year are predicted to be considerably higher than 2003/4. This is largely due to the new contract, including Q&O and enhanced services.

The Q&O balancing payment for 2004/5 will be included in profit figures for that year even though payment is made after the financial year end for practices with a March 31, 2005, year-end. The majority of practices have this year-end.

Not only this, many items such as rent and drugs reimbursement, dispensing income, co-operative fees and PCT board fees are now superannuable.

For the above reasons the total amount of superannuable income will be considerably higher and there is now a double whammy. Employer's contributions are now 14 per cent.

This makes total payments of 21 per cent once added to the employee 7 per cent contribution. GPs are now responsible for paying their own employer's and employee contributions (in practice some PCTs still deduct at source).

Funding for both elements has been included in global sums/PMS budgets, along with some extra payments to cover some of the increases in new contract income. Crucially not all increases are covered.

So not only will superannuable income be higher but there is no full PCT funding for the extra employer's element either. Unless your practice has made a point of roughly calculating superannuable profit and increasing contributions or setting extra money aside, there will be a considerable sum in extra payments to make.

If for instance your NHS profits are 10 per cent higher or £10,000 per partner, the extra payment required will be £2,100 per partner. Profits could be considerably higher. You will not know your own figure until much later in 2005 when you accounts are agreed.

If you have not already done so, try to roughly calculate your figures now. If you are not sure how to do this, get your accountant to help.

Staff pay rise

There may not be any addition to global sums/PMS budgets for staff pay rises for 2005/6. Although GPs are not bound by Agenda for Change recommended increases in staff pay, there will be considerable pressure for higher rises this year. Practices where recruitment is a problem may have little option but to boost pay.

With inflation around 2 per cent, it is unlikely any practice will get away with less than a 3 per cent increase. With the average GP spending £40,000-£50,000 on staff, a 3 per cent pay rise without extra PCT funding could cost around £1,475-£1,850 including the knock-on effects on employer's national insurance and superannuation. So this is very much something to bear in mind.

Investment in the practice

There are a great many reasons why a practice may wish to make business investments in 2005/6.

If you did little in the way of enhanced services last year (perhaps focusing on Q&O) and now want to improve things, or are planning to expand further, it is likely you will need to invest some money in extra staff time, equipment and training.

This may also be the case if you want to improve your Q&O performance, especially as points are worth even more in 2005/6.

You may also want to invest in improvement or extension to your premises, something that is more difficult now that premises grants are ringfenced.

Part of your Q&O payment may help you achieve any of the above. It is also psychologically easier to commit money that is coming in as an 'extra payment' rather than restricting drawings or taking out a loan.

Extra tax payments

Most of us had an unpleasant surprise when our accountants completed the 2003/4 accounts. Generally profits were well up during this period, even before the new contract. This was reflected in the January 2005 tax balancing payment and also reflected in the first payment for 2004/5, paid at the same time. Payments £5,000-£10,000 higher than July 2004 were not unusual.

The profit increase for 2004/5 could be around 15-20 per cent. Therefore January 2006 tax bills could rise by the same sort of amounts again. It makes sense to prepare in advance for this unless you are confident you can cover the amount from existing savings.

What could the damage be?

Clearly the above is a worst-case scenario, and much will depend on each practice's individual circumstances. The table below uses conservative averages to provide a rough idea of how the Q&O balancing payment could be spent.

As shown, there are other options for funding some of the expenses suggestions above. For instance the Q&O aspiration payments will be rising from April 2005 so there is always the option of using extra income.

The key point is that you must be aware of your 2005/6 commitments and then plan how they will be funded. You must not ignore the issues and then face a painful fall in drawings or even having to pay money back into your business due to underfunding or overdrawing.

Make sure you have the pleasure of spending some of your Q&O money on yourself.

John Couch is a GP in Ashford, Middlesex

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