Are
you struggling to understand the calculation of superannuable
profits?
The new GMS contract introduced a major change
as to how GPs superannuation will be calculated in the future,
moving from being based on a proportion of income to NHS
profits.
To calculate your NHS profits you or your
accountant will need to complete the new Annual Certificate
of Pensionable Profits, which you should have received from
your PCT. This will need to be submitted to the PCT by 28th
February 2006.
To illustrate how the certificate should be
completed, we are using Dr A as an example from a two partner
practice. The information needed to complete the certificate
can be found in the accounts and also the partnership tax
computation, which is used to complete the partnership tax
return.
Boxes 1 to 12 are preliminary calculations
for the split of expenses. Included in the accounts will
be expenses that relate to NHS income and nonNHS income,
it is very difficult to determine how much of salaries,
heat and light, rent etc relate to nonNHS income. For most
GP’s, expenses will be split based on the ratio of
nonNHS income to total income (standard method).
The entries in the boxes should be the amounts
adjusted for tax purposes. As you are probably aware the
profits per the accounts are never the same as the profits
declared on your tax return. The reason for this is there
are certain adjustments that are required by tax legislation
before arriving at taxable profits. For example, some income
may have had tax already deducted at source i.e. bank deposit
interest and hospital appointments. If these are not adjusted
for, then tax will be paid on this income twice. Your accountant
will deduct this income from your profits before arriving
at taxable profits. These adjustments will be shown on the
tax computation and will not appear in the accounts. Depreciation
is not an allowable expense for tax purposes and capital
allowances are claimed instead. Again the profits per the
accounts are adjusted to add back the depreciation and then
deduct the capital allowances Again, these adjustments will
be shown on the tax computation. Some legal and professional
fees are not allowable for tax purposes and would be added
back on the tax computation e.g. solicitors fees for preparing
partnership agreements are not an allowable expense.
Box 1 – Should include your share of
partnership income, adjusted for tax purposes. This practice’s
income is £399,256 (his will be the income from the
profit and loss page in your accounts) of which £28
relates to bank interest and is excluded for tax purposes
(this will been shown on the tax computation). This gives
an amount of income of £399,228. Of this amount, £50,982
of income is not split in the profit sharing ratios, but
is allocated to the individual partners first, this is shown
in the accounts as a prior allocations. Therefore, the income
cannot simply be split in the ratio 50:50. To calculate
Dr A’s share of income, we firstly need to deduct
the total amount that has been prior allocated of £50,982
from the total income (adjusted for tax) of £399,228
which gives £348,246, his 50% share is £174,123.
This is added to the income that has been prior allocated
to him of £27,582 to give your share of income of
£201,705.
Box 2 – Should include any medical income
that is not included in the partnership accounts (box 1).
Dr A’s personal income is £715, which has been
shown as a deduction from his personal expenses, and is
the entry for this box.
Box 3 – If any income in boxes 1 and
2 has had superannuation deducted at source then it should
be included in this box e.g. hospital income which has had
superannuation deducted. If this income has been taxed then
it has already been excluded from box 1.
Box 4 – Is the total of boxes 1,2 and
3.
Box 5 – Should include your share of
nonNHS income from the partnership e.g. private fees. The
total nonNHS income in the accounts is £14,594, of
which Dr A’s share is 50% giving an amount of £7,297.
Box 6 – If any of your non practice
income (box 2) is nonNHS then it needs to be entered in
this box. The amount of £715 is for private fees,
and is included in this box.
Box 7 – Is the total of boxes 5 and
6, which is £8,012.
Box 8 – Is the calculation of your nonNHS
income to total income ratio. This is calculated by dividing
Dr A’s nonNHS income (box 7) of £8,012 by his
total NHS and nonNHS income (box 4) of £202,420 this
is 3.96%.
If your nonNHS income to total income ratio
is more than 10% and your nonNHS income total figure is
above £25,000, then the standard method cannot be
used. Instead, the alternative method or your own method
should be used to calculate a more accurate split of expenses.
Box 9 – Is your share of partnership
expenses adjusted for tax purposes. The expenses per the
accounts are £208,393 (this will be the expenses per
the profit and loss page in the accounts) this includes
an amount of £1,150 for depreciation which is added
back for tax purposes. The capital allowances are deducted
of £1,548 (these adjustments will be shown on the
tax computation). Therefore, expenses adjusted for tax purposes
is £208,791. Again, this cannot simply be split in
the ratio of 50:50 as an amount of £3,675 has been
prior allocated to Dr A. To calculate his share of expenses,
we need to deduct the amount that has been prior allocated
of £3,675 from the total expenses (adjusted for tax)
of £208,791, which gives £205,116, his 50% share
of this is £102,558. This is added to the expenses
that have been prior allocated to him of £3,675 to
give his share of expenses of £106,223.
Box 10 – Is your personal expenses and
personal capital allowances that are not included in box
9. Dr A’s net expenses are £6,463, of this an
amount of £715 has been deducted from the total expenses,
therefore his actual expenses are £7,178 (£6,463+£715)
plus his personal capital allowances of £1150 giving
a total for this box of £8,328.
Box 11 – If the surgery loan interest
is not included in the partnership accounts and shown as
an expense in box 9, but is declared separately on your
tax return, then the relevant amount needs to be included
in this box. The amount included will be the figure per
your tax return. In this example, the surgery loan is shown
as an expenses in the partnership accounts, therefore this
box is not relevant.
Box 12 – Is this total of boxes 9,10
and 11.
The actual calculation of superannuable profits
starts from box 13.
Box 13 – Is your taxable profits from
the partnership. This will be the amount that is declared
on Dr A’s tax return, which is £87,858
Box 14 – Is the amount of employer’s
superannuation, which has been deducted under the new contract
from 1st April 2004 to your accounting year end. In this
example the amount deducted from 1st April 2004 to 31st
March 2005 is £9,376.
Box 15 – Is any income that is included
in your taxable profits (box 13) that has already been pensioned
e.g. hospital income paid gross to the practice. If the
income is not included in box 13, then it can be ignored
as it has already been pensioned and does not need to be
included in this calculation. In this example, this is not
relevant.
Box 16 – Is your nonNHS income, which
is included in your taxable profits (box 13). For Dr A this
is the same amount as box 7, £8,012.
Box 17 – Is your nonNHS expenses. As
your ratio of nonNHS income to total income ratio (box
8) is below 10% and your nonNHS income is below £25,000
you can use the standard method. The standard method calculates
your nonNHS expenses based on the nonNHS to income ratio
(box 8). For Dr A his nonNHS income ratio is the 3.96%
(as calculated in box 8) multiplied by total expenses of
£114,561 (box 12) which gives £4,535.
Box 18 – If the surgery loan interest
in declared on your tax return, the amount should be entered
in this box as it is part of your expenses. In this example,
this is not relevant.
Box 19 – Is there to sweep up any NHS
income, which should be superannuated under the new regulations,
but is not included in the taxable profits (box 13), for
example if a GP has income from out of hours coop work
and this is shown separately on their self employment pages
of their tax return. This income will not be included in
their taxable profits (box 13), and as it is now superannuable
this income should be entered in this box.
Box 20 – Is your total superannuable profits before
adjusting for the employer’s superannuation. For Dr
A this is £93,756.
Under the new contract the global sum includes
the funding to pay for the GP’s employer’s superannuation
contributions, which were previously paid, direct by the
PCT. The PCTs are making deductions for the employer’s
contributions based on an estimate, as the actual amount
will not be known until the certificate has been completed.
The deductions made during the accounting period are effectively
payments on account, and it will be necessary to calculate
a balancing payment in respect of the employer’s contributions
as well as employee’s. In order to ensure that GPs
are not paying superannuation contributions on the income
they received to fund the employer’s contribution
we need to calculate the superannuable profits before employer’s
contributions. We will never know the exact amount of funding
being given but we do know the amount that is being deducted
by the PCT. Therefore we need to add the actual amount of
employer’s contribution that has been deducted during
the accounting period, back to the profits (this is shown
in box 14). Box 20 represents the GP’s profits plus
the funding for the employer’s contributions. It is
assumed that this amounts to superannuable profits plus
the 14% for employer’s superannuation. So to return
back down to superannuable profits we need to multiply the
profits in box 20 by 100/114. This is the profits on which
the GP will pay their 6% and 14%.
In this example Dr A’s superannuable
profits including the employer’s superannuation is
£93,756, which is multiplied by 100/114 to give superannuable
profits of £82,242. The employees (6%) and employers
(14%) contributions will be calculated based in this amount.
The certificate should be submitted to the
PCT who will then compare the actual superannuation due
to the deductions made, and any balance due will either
be deducted from your next payment or collected direct from
the practice.
