Understanding Practice Accounts

1. Understanding Practice Accounts Jenny Stone, ACA Ramsay Brown and Partners Ramsay House 18 Vera Avenue London N21 1RB Tel: 020 8370 7705 E-mail: Jenny@ramsaybrown.co.uk

2. What are Practice Accounts? • Historic record of the financial performance of the practice • Accounts will be prepared from the books & records the practice maintain throughout the year • Consist of Profit & Loss account & Balance Sheet • Profit & Loss – Record of practice income & Expenses • Balance Sheet – Provides practice with a value of their assets and each partner’s share of those assets. • The accounts will include notes to support the profit and loss and balance sheet

3. Purpose of Accounts • Purpose of accounts • Calculate profits to declare to tax man • Useful tool in making financial decisions • Calculating projection of drawings • Bank may require for lending purposes • Accounts will usually be prepared annually to the practice year end • Accounts will include comparative figures, this will be the results for the previous accounting period • Figures in brackets means they are deducted from another figure in the accounts

4. How are GPs Paid • GP practices have a contract with the PCT, this will be a GMS, PMS or APMS • GMS Practices • Receive a global sum payment calculated based on number of patients • MPIG Correction factor • Quality & Outcomes framework • Enhanced Services • Seniority income to reward experience within NHS • Reimbursements of expenses e.g. Rent & Rates, drugs purchased • Other income from medical reports and other sources

5. How GPs are Paid • PMS Practices • Locally negotiated contract • Can also include growth money towards cost of employing salaried GPs • Quality & Outcomes framework • Enhanced Services above those included in baseline • Seniority Income • Reimbursements similar to GMS practices • Other income similar to GMS practices

6. Profit and Loss Account • Shows profitability of the practice • GP & nurse partners are running a business and the object is to make a profit • New partners thinking about joining will be interest in the profitability of the practice • Profits need to be calculated for the tax man • Profit of the practice is allocated between partners according to profit sharing ratios • Profit sharing ratios are usually based on number of sessions worked

7. Balance Sheet & Current Accounts • Balance sheet shows snapshot of the practice assets and liabilities • Two halves to the balance sheet – top half lists the assets & liabilities, the bottom half shows each partners ownership of those assets – both halves will equal • Current accounts are very important as show the individual partners money left in the practice

8. Drawings • Need to be set at a realistic level, take into account expected lost income and/or increased expenses • Drawings need to be reduced to take account of changes to superannuation from 1st April 2008 • Employees superannuation increase • Earnings cap removed • Review throughout the year, if practice is getting into cash flow difficulty may need to reduce

9. Changes to income for 2008/09 • Global Sum will increase by 2.2%, amount per patient increases from £54 to £56 • However, if practice in receipt of MPIG, the correction factor will be reduced by any increase in global sum and therefore will receive no increase • QOF – Removal of 58 QOF points to be put into extended hours • Enhanced Services – No inflation uplift

10. Maximising Profits Increase Income • No Inflationary Increase global sum & MPIG • Increase practice list • Practice Mergers • No Inflation increase in QOF • Aim to achieve maximum QOF points • Ensure max enhanced services income and taking up new directed enhanced • New Sources of non-nhs income

11. Maximising Profits • Difficult to maximise income • In addition need to control/reduce expenses • Review all areas for potential savings • Cheaper suppliers for telephone, gas, electricity • Keep an eye on stationery expenditure, costs can escalate • Review work carried out by staff • Review use of locums • Setting budgets for all areas of expenses for year, allows you to monitor and control expenses

12. Superannuation for GPs • Superannuation based on GPs NHS pensionable profits • GPs to complete end of year certificate to declare profits • PCT make deductions each month based on an estimate of profits • Once certificate submitted, PCT will collect any shortfall or refund of superannuation • Ensure PCT deducting superannuation using up to date estimate of profits • GP and non GP partners responsible for both employees and employers superannuation

13. Changes to Superannuation Contributions • Employee’s Contribution increased from 1st April 2008 (2008/09) • Based on tiered contribution rate • 0 to £19,682 – 5% • £19,683 - £65,002 – 6.5% • £65,003 - £102,499 – 7.5% • £102,500 – 8.5% • Rate for 2008/09 will be based on pensionable pay for 2006/07 • Earnings cap removed for ee & er contributions • Earnings cap will still apply to added years contract commenced before 1st April 2008, for those GPs who were previously capped