Weeding out fibbing jobhunters
Official guidance on how to calculate NHS superannuable profits has yet to be published by the Pensions Agency, but draft guidelines have been made available accountant Richard Vickery explains how to make use of them
In the years up to 2003/4 GPs' superannuation contributions were based on superannuable income as defined in the Red Book. This was easily done and was calculated monthly and quarterly by reference to the income statements from the PCO.
Under the new GMS and PMS contracts, from 2004/5 superannuation contributions are to be based on an individual GP's NHS superannuable profits. It is how these profits are to be calculated that has led to some delay in the publication of definitive guidelines.
The recent draft proposals have laid to rest some of the major concerns.
As an introduction to the new scheme, payments on account have been made by PCOs based on an estimated superannuable profit. How the estimates have been calculated has varied from PCO to PCO, but as a rule they are first estimated by reference to the superannuation contributions for the year to June 30, 2003, and then uplifted for inflation and in some cases adjusted for expected increases in income during 2004/5.
These payments on account will be taken into reckoning when certified superannuable profits are available. Any underpayment will be collected from the GP and any overpayment refunded by PCOs.
Funding for employers' superannuation contributions, which is now payable by GP principals, has been well documented. Essentially these are funded by increases in global sum (1.46 per weighted patient), by quality points, and by reduced deduction in quality points for PMS practices.
Total extra funding for GPs' employers' superannuation is £28 million for 2004/5 and £60 million for 2005/6.
Superannuable profit, according to draft guidelines, is to follow the established taxable profit rules and will be calculated for each individual GP and certified by that GP. For GPs with an accounting date other than March 31 (or April 5) there will be no need to change to March 31 as the concept of overlap profits will be carried over from the tax system.
This means that only medical profits earned from April 1, 2004, will be subject to the new rules. For example, accounts for the year-end June 30, 2004, would form the basis of superannuable profits to be certified for 2004/5. Those profits for the period July 1, 2003, to March 31, 2004, would already have been superannuated under the old 'income' system and would form the 'overlap profit' to be used as an adjustment when GPs retire, leave a practice, or change their accounting date.
New GPs' superannuable profits would follow the same principles as taxable profits on commencement.
According to the draft guidelines, the first step is to calculate total medical income (excluding income already subject to superannuation contributions) then deduct non-NHS income. The next step is to calculate total expenses relating to medical income, then either pro rata those expenses or use a strict basis, in some circumstances, to arrive at NHS-related expenses.
Deduct these NHS income-related expenses from the NHS income, deduct any interest paid personally for business purposes but claimed in your personal tax return, and you arrive at your superannuable profit.
of total income for the expenses ratio
This will comprise:
·The GP's share of practice income before expenses, as adjusted for tax purposes
·Plus any other taxable medical-related income declared on the personal tax return or offset in a personal expenses claim
·Minus any income included above that is already superannuated elsewhere.
This gives the total relevant NHS and non-NHS income.
of total non-NHS income for the expenses ratio
The above steps are then repeated to calculate the total non-NHS income, as adjusted for tax, included in the accounts or declared on the personal tax return or offset against personal expenses.
This gives the ratio of non-NHS income to total income.
If the non-NHS income is less than
10 per cent of the total (less than £25,000) and if there are no associated company expenses, then the total expenses can be apportioned pro rata between the NHS and non-NHS income. This is known as the standard method.
If the income is more than 10 per cent or more than £25,000 or there are expenses in an associated company, then the expenses that are wholly attributable to the NHS and non-NHS income must be allocated on a strict basis and the balance of overhead costs allocated on a pro rata basis.
of total expenses
These will comprise:
·The GP's share of expenses from the accounts as adjusted for tax purposes
·Plus the tax-deductible medical-related expenses claimed on the personal tax return or in a personal expenses claim via the partnership tax return
·This also has to include expenses incurred in an associated company this includes a company controlled by the GP or the GP together with the GP's siblings, the GP's spouse or lineal descendants of the GP or spouse, or the GP's business partners.
of superannuable profit
It is proposed that this will be calculated as follows:
·Total taxable profit (ie total tax-adjusted medical income less expenses)
·Less non-NHS income
·Add non-NHS expenses (calculated per standard method or specific apportionment)
·Less interest paid on personal loans for partnership capital.
This provides the individual GP's superannuable profit.
of superannuation contributions
The 6 per cent employees' contributions together with any added years are then calculated based on this profit and any AVC contributions are also noted on the return. This will enable the Pensions Agency to produce the SD86. However, as currently drafted the form does not include any provision for the calculation of the 14 per cent employers' contributions but just the employees' contributions.
The contributions deducted by the PCO through the year will need to be allocated to the individual GPs so that the actual contributions payable can be compared with the total monthly deductions and a balancing payment made.
Richard Vickery is a senior manager with PKF Medical Services Group, Guildford, Surrey
Medical work now included as superannuable and work that is not included
Income to include in superannuable profits
·Earnings in respect of a contract for primary medical NHS services with registered NHS pension scheme employing authority
·Reimbursements, including rent and drugs
·Any NHS income not included above and not already superannuated
Income to exclude from superannuable profits
·Direct contracts with prisons, hospices, out-of-hours providers, charities, insurance companies, etc, that are not NHS pension scheme employing authorities
·Earnings under a fee-based (contract for services) arrangement with a NHS Pension Scheme Direction body
·NHS income that has already been superannuated
(eg, appointment income that may be included in the accounts)
·Any non-NHS income not included above