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Should you accept an offer of becoming a partner in the practice?

by in AISMA, GP Practice Management

The partners have shown how much they value your contribution to the practice by offering you the opportunity to become a partner. While the recognition is gratifying, what does it actually mean, especially from a financial perspective? AISMA accountant Luke Bennett offers these points for consideration.

Profit share

Becoming a partner means sharing in the practice profits. Find out how your profit share will be worked out. There are many ways of calculating profit share among the partners, but they are all a variant in one way one another of:

  • A fixed share plus potential for a bonus
  • A variable share based on working commitment, but at some discounted rate to the clinical partners.

Click here for illustrations

Capital

Most partners need to contribute a lump sum towards the day-to-day working capital of the practice. Ask what capital contribution you are required to make. Logically it should be consistent with the profit-sharing arrangements.

Drawings

Compared with the net pay you are currently receiving as an employee, you will expect your monthly drawings as a partner to be higher. Note, however, that even if your profit share is higher than gross salary, the drawings you receive will need to account for:

  • The repayments on any loan you take out to buy into partnership capital
  • Any ongoing contribution to partnership capital which will be required if the partnership is repaying borrowing
  • Some leeway to allow for variation in partnership profits

Effect on other partners

The partnership as a whole will benefit from you becoming a partner because there will be no employer’s National Insurance contributions (NICs) payable on your profit share. However, the saving in NICs may not cover the increase in remuneration you should expect as recompense for the additional risks and responsibilities of partnership. Therefore, the profit for the other partners may well reduce.

There will also be an increase in accountancy costs since you will need to complete a tax return and annual certificate of pensionable profits.

NHS Pension

Your pensionable earnings will be based on profit share divided by 1.1438. Profit derived from non-NHS income sources will be excluded from pensionable earnings.

If you are a member of the 1995/2008 NHS Pension Scheme there may be a Final Pay Control charge when you draw your pension benefits. This is a complex topic but in essence, the charge may arise if you receive an increase in pensionable pay of more than 4.5% plus inflation in the three years leading up to retirement.

The partnership agreement should make clear whether any Final Pay Control charge is paid by the partnership or by you.

Loss of employment rights

When you become a partner you will cease to be an employee and will be giving up employment rights such as redundancy, protection against unfair dismissal and certainty of pay. You will need to be comfortable that what you are gaining in both remuneration and status as a partner is sufficient compensation for foregoing these benefits.

Partnership agreement

If this is the first time a non-clinical partner has joined the partnership the partnership agreement, also known as the partnership deed, should be reviewed to ensure it is written with non-clinical partners in mind.

For example, the provisions for profit share during a period of sickness may assume that some reimbursement will be payable under the NHS contract. This won’t be the case for a non-GP partner so there may be a need to take out keyman insurance. This would provide income for the practice to pay for someone to take on your responsibilities if you are absent on long-term sickness, thus protecting practice profitability.

Golden hello scheme

The £20,000 golden hello scheme for first-time partners in England (but not other parts of the UK), which opened for applications on 1 July after a delay caused by the COVID-19 pandemic, may be extended by NHS England to include practice managers. Further details are expected soon.

Luke Bennett is a board member of the Association of Independent Specialist Medical Accountants

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