As many practices have a 31 March accounting year-end, we thought it would be a useful time for you to review the following areas whilst bringing together your financial documentation ready to prepare the annual accounts.
Does your bank balance in your specific system match the balance shown on your bank statements? If not, do you have a list of differences or uncleared items at your year-end? This is the most important area for you to check, as if the bank is correct / balances then you know that the majority of your income and expenses have been included.
Have you fully analysed all your income streams, so you do not have large bankings labelled as CCG / NHS in your system, which could be broken down into individual enhanced services categories? This has become a larger problem more recently with local CCGs not sending remittances or making it clear what an amount or deduction was for.
Within income streams, ensuring that your Open Exeter reports match what has been banked is vital. If it doesn’t, ensure that you have the remittance which shows what the extra income or deductions was for and enter this onto your system.
Debtors (Who owed money to you)
At your year-end you should have a list of organisations and individuals who owed you money for either enhanced services or for items such as insurance reports. It is also useful to know, especially for CCG income, which quarters have been paid as some services are paid a quarter in arrears.
Is your system able to run an “aged debtors” report? Are all the entries on there going to be paid and if not, should they be written off? Carrying forward old debts can complicate a system and can lead to chasing debts which will not be paid.
Creditors (Who you owed money to)
As with debtors you should have a list of people and organisations that you owed money to at the year-end. The largest ones would normally be for items such as drugs and medical expenses, with some being two or three months before payment is due.
Is your system able to produce an “aged creditors” report, if so ensure that the list is accurate and does not hold any old balances or small differences which need to be removed.
As close to your year-end date as possible, take stock of all items, including reimbursable drugs, other medical supplies and consumables and stationery. Stationery has become more important in recent years due to the cost of printer and toner cartridges.
Ensure that the software you are using is up to the task and its functions match your specific requirements. With “Making Tax Digital” just around the corner, it is even more important that the software you are using is compliant with HM Revenue & Customs strict guidelines.
These are just a few useful tips. Each practice is different and the systems you use will be unique to you, some of these areas will be more relevant than others. However, if you follow these steps it will give you a head start on your year-end and assist in ensuring the accounts are in the best position to be processed.
If you are unsure about how to prepare for your financial year-end accounts or would like more information about suitable cloud based bookkeeping systems, then please get in touch with Chris Ellison, Healthcare Services Assistant Manager, or alternatively contact us here.
Changes in the 2021 Budget
In April 2016 the Lifetime Allowance (LTA) reduced from £1.25 million down to £1 million and had since received increases in line with inflation, with the allowance standing at £1,073,100 from 6 April 2020. This limit has now been frozen in the March 2021 Budget at £1,073,100 for the tax years up to and including 2025/26.
Inflation remains low at under 1%, so the implications if you are retiring in the next financial year are relatively small as the limit would not have increased by much anyway. The cumulative effect if you are retiring nearer the end of the frozen period, however, are more significant. Even if inflation were 1% in the intervening years, the limit would have risen to £1,127,839, meaning £54,739 more capital value of pension would be covered. The freezing of the limit, even at 1%, would therefore mean an extra £13,685 of tax due. At 2% inflation, the extra tax would be nearly £28,000.
What should I do?
Individual Protection 2016 (IP2016) is still available for those with pension savings in excess of £1 million at 6 April 2016 and can protect the pot up to £1.25 million. Individuals should arrange for a review of their pension savings with their financial advisor to consider if they could be in danger of exceeding the lifetime allowance of £1,073,100. The exposure to the limit is calculated as 20 times the pension plus any lump sum. Broadly this means that a member of the 1995 section of the pension scheme retiring on a pension of more than £46,656 may pay an LTA tax charge. Commuting of pension to take more lump sum can also reduce the capital value for LTA purposes and therefore reduce the exposure.
No deadline date has currently been set for an application for IP2016, as long as it is done before benefits are drawn, so it is worth checking your pension statements and speaking to us for assistance in applying if you meet the criteria.
What is it?
It is a move to encourage NHS clinicians not to reduce their commitment to work, which many had done to try and avoid an Annual Allowance (AA) pension tax charge. For the one-off year of 2019/20 only, where you have asked the scheme to pay a pension tax charge for you, the NHS will fully recompense you so that no financial loss is suffered.
How does it work?
The compensation scheme can only be used if you have asked the scheme to pay a tax charge for you. It cannot be used if you paid the tax through your self-assessment return. When you have completed a scheme pays election for 2019/20, your pension in retirement will be reduced in the normal way to recover the tax paid on your behalf. The NHS, however, will pay you a corresponding separate salary in retirement, subject to PAYE deductions of tax and national insurance where necessary, to completely offset the reduction in pension.
How do I apply?
The application can be downloaded by clicking link below. No figures are needed on it, just your personal details and a signature and date.
What do I do with it?
The form needs countersigning by your NHS employer. For the separate categories, the process is as follows:
Employed clinicians: After you have signed and dated the form, it should be passed to the director of your employer’s Human Resources department to complete, stamp, sign and date their part. After passing back to you, it should be submitted to NHS Pension at this address:
NHS Pensions, PO Box 2269, Bolton, BL6 9JS
GPs (including partners, salaried GPs and locums): Your signed form needs to be submitted to PCSE via the online portal through the ‘GP Pensions’ and then ‘Individual Protection’ drop-down boxes.
Dentists: Will complete the form via their Compass portal.
What date does it need to be submitted?
The ‘normal’ deadline date is by 31 March 2022, but it is strongly recommended that the submission is at the same time, or slightly after, the scheme pays election is made. The deadline for 2019/20 scheme pays elections is 31 July 2021, so ideally that is the latest date you should be looking at.
There is an earlier date required for those GPs who have retired or will do by 31 March 2021. The scheme pays election for all clinicians who have done this will have been required before the AW8 application for the pension was submitted. Very recently, however, PCSE have imposed a very restrictive date for GPs only in this category of 21 March 2021. That seems wholly unrealistic under the circumstances. Representations to NHS Pensions have been made and it is understood that a soft approach will be taken with this date.
If you require any advice regarding the above please get in touch with Dave Walker, Healthcare Services Senior Tax Manager or alternatively contact us here.
You should recently have received your 2021/22 PAYE Notice of Coding if you are in receipt of salaried income or pension and tax is deducted at source.
Most people who pay tax are entitled to tax free personal allowances. If you have no other income you can have employment earnings up to the personal allowance without having to pay any tax. There may be other amounts added to your personal allowance such as professional subscriptions or job expenses that increase the amount you can earn before paying tax and therefore reduce the amount of tax you pay.
There may also be items in your tax code that reduce your tax-free amount and so increase the amount you pay in tax such as state pension, benefits such as private medical insurance or estimated rental income.
If you are in receipt of other earnings such as partnership earnings, the personal allowance will more than likely be used up and therefore the code may be incorrect and insufficient tax be deducted on your salaried appointment or pension. This will result in a larger tax bill becoming due via Self-Assessment in the January following the tax year and also have a knock-on effect to payments on account for the following year as HMRC assume earnings and tax deducted will be the same in that year. This may make your net income more difficult to assess for personal budgeting.
MHA Moore and Smalley’s Healthcare Services Team provide a service to check your 2021/22 PAYE Notice of Coding and advise HMRC of any changes required and enable you to budget more accurately for future income and outgoings.
Making Tax Digital (MTD) was first talked about almost five years ago now by HMRC as they believe avoidable mistakes by the taxpayer is costing the Exchequer billions each year. In fact they have estimated this figure at £8.5 billion in the 2018/19 tax year alone.
MTD was originally meant to be introduced for Income Tax in April 2018 but due to the enormity of the challenge of ensuring there was access to suitable software for the taxpayer and development of HMRC’s back end systems this was indefinitely delayed. HMRC then moved their focus to MTD for VAT as VAT returns were already filed quarterly and a higher proportion of VAT registered business would already use software.
From April 2019 all VAT registered business with turnover greater than the £85,000 VAT threshold have been required comply with the VAT rules by keeping digital records and using software to submit their VAT returns.
Recently HMRC quietly announced the following plans for MTD:
- To make MTD for Income Tax mandatory from 6April 2023 for businesses and landlords with turnover in excess of £10,000.
- To mandate those business who are VAT registered but currently have turnover under the £85,000 threshold into the VAT regime from April 2022.
MTD for income tax will apply to the self-employed, partnerships and to those who receive income from property, with gross income from these sources combined above a threshold of £10,000. The draft legislation includes an exemption for the largest partnerships, defined as those with a turnover of more than £10m
Such businesses will be required to maintain their accounting records digitally in a software product or spreadsheet. Maintaining paper records will no longer meet the requirements of the tax legislation Information will have to be submitted quarterly to HMRC via the required digital platform and then finalise their tax position after the end of the tax year.
MHA Moore and Smalley offer a wide range of digital accounting solutions and support and training to our clients looking to change their accounting package, get more out of their current system or looking to install a computerised system for the first time.
For GP practices we are able to assist you to tailor your accounting software to ensure that it will be compatible for the MTD requirements and to ensure meaningful figures are available on a monthly or quarterly basis.
Never before has the medical profession faced such pressure; the way services are being delivered has changed, demand has increased, there are numerous changing regulations, and more pressures are being put on the partnership to combat this, whilst still continuing to deliver a high standard of care to their patients.
Partners are required to think more as business owners and as such they need to think strategically. It is essential that anyone joining the partnership receives training at a high level to help equip them for their new role.
The MHA Moore and Smalley Healthcare Services Team has developed various training modules to assist new partners in the financial aspects of their position.
We have been advising healthcare sector clients for over 30 years, and will use our vast knowledge and understanding of the intricate nature of the sector, to work closely with new partners and provide the training and support they need in order to flourish in their new role.
We have also teamed up with specialist healthcare solicitors who are able to deliver training on the legal aspects of joining a partnership.
The new to partnership payment is an incentive scheme set up by NHSE to encourage Doctors to take on a partnership position after a sustained decline in the number of GPs in partnership in recent years. The scheme enables health professionals to receive a payment of £20,000 if they take up a full-time partnership role for the first time after 31 March 2020. There is also a further £4,000 available for on cost expenses and £3,000 for training in respect of early partnership skills development.
The incentive is also available for physiotherapist, pharmacists, nurses and other clinicians taking up a partner position. Practice managers have not yet been included but it is hoped they could be added later. The scheme became effective from 1 July 2020 but applicants are eligible from April 2020.
Please see guidance from NHS England for the full criteria – https://www.england.nhs.uk/wp-content/uploads/2020/10/new-to-partnership-2020-21-guidance.pdf
Treatment in partnership accounts and individual tax returns
The income should be included under NHS income, which can then be distributed to the individual via a prior share of income before the remainder of profits are distributed. As such, this income would form part of the taxable partnership profits on the individual’s self-assessment tax return and would be subject to Income Tax and National Insurance at their marginal rate. The whole amount will not be taxed on receipt as there is potential for claw back, so an amount equivalent to 1/5 will be taxable each year.
Any partners who leave the partnership before the end of the five-year term will have to repay 20% of the funding for each year not completed. We would therefore recommend that the lump sum payment is not directly withdrawn from the practice, but instead is utilized as the new partner’s initial buy in fund for their share of the working capital of the practice.
For NHS pension purposes the incentive is non-pensionable income.
The application form can be found on this link – https://www.england.nhs.uk/wp-content/uploads/2020/06/N2PP-Application-Form-v1.5_distributed.pdf
Before applying for this incentive, consideration must be given to the following:
- An up to date signed partnership agreement or suitable letter on practice headed paper must be attached to the application
- Evidence of a current GMS/PMS contract, will be checked by NHSE with CQC, but a copy of an APMS contract must be provided
- Although partnership agreements might be expensive every partnership should ensure they have a valid and up to date one for their practice
- The possible effect of the additional income on personal tax. For example, this incentive could effectively mean earnings are pushed into higher rates of tax, or income may reach levels above £100,000 where there would be loss of personal allowances to consider. It may be worth asking your accountant for a tax estimate before applying.
- The guidance does state that there is an additional 20% (Pro rata to FTE) available for on costs (tax & NI) which is payable with the incentive payment.