How to account for property

Property used by the practice falls into two main categories; – owned premises (by the partners or some of the partners) and leased premises.

Reimbursements

1. If the partners own the premises they will receive either a notional or cost rent from the NHS. Notional rent is a market rent assessed every three years by District Valuer Services (DVS). The practice should ensure that a review is held soon after the three years are up. If necessary use a specialist surveyor to appeal this as DVS acts for the NHS not the practice. Rent should then be paid monthly by the NHS.
2. Practices in leased premises should receive an actual rent reimbursement – and if agreed by commissioners this should match the rent being paid out.
3. The NHS will also reimburse business and water rates in full.

The practice should ensure systems are in place to monitor and claim reimbursements. As part of the annual accounts process this should also be reviewed annually. The accounts should clearly show the rent and rates reimbursements and expenses separately so that this can be monitored.

Owned premises

If the premises are a partnership asset then they should appear on the balance sheet, usually to the value stated at the latest revaluation. There is no requirement to update the accounting valuation unless it is needed for a change in the partnership structure.

The ownership of the property often does not match the general profit sharing ratios. You would therefore expect that the allocation of rents and any property costs in the account should match the ownership structure.

In addition, the equity (valuation less loans outstanding) should be scheduled out in a property capital account so that the equity per partner is clearly shown.

Changes in the partnership

When someone leaves the practice they would normally expect their equity to be paid out. The practice will therefore need to arrange for a valuation of the premises at that point.

GP practices are unusual in that they can still get 100% of any property value funded by lending. In advance of a partnership change the practice should discuss early with the bank any lending requirements. As partners come and go, interim arrangements need to be agreed as a retiring partner may need to be paid out before a new partner has the lending agreed and in place for their share of the property.

Property expenses

In cases where the property ownership structure does not match the general profit sharing percentages, the practice will need to have a clear agreement in place stating which expenses are deemed to belong to the property owning partners and which are deemed to be general practice expenses. Discuss this with your accountant and your solicitor when updating a partnership agreement.

Leased premises

The main accounting issues concerned with leased premises are:

1. Ensuring that all rent and rates payments have been reimbursed by the NHS.
2. Any service charge liabilities have been factored into the accounts. If there are any subsidies owing then again these need to be included in the accounts.
3. Many leases include redecorating clauses or dilapidation clauses. The practice need to ensure adequate reserves are built up to meet these costs as and when they arise and that these reserves are shown separately in the accounts.

Changes in the partnership through leavers and starters will also need to be reflected through the lease. New partners should review the lease terms prior to starting to make sure they understand the key terms and what risk is attached to them.

Often though, especially with older NHS properties there are no leases which makes life difficult for both the practice and the accountants advising on the possible liabilities.

You can find parts 1-7 on the Practice Index blog here.

Written by the Association of Independent Specialist Medical Accountants (AISMA)