need to know about joining a partnership
You have been offered a partnership with a practice and
have been given a copy of their latest accounts, but you
don't know what you should be looking at to get an idea
of how much you will earn or whether you are required to
buy in to the assets of the practice.
How much will I earn?
As a partner you will be entitled to a share of the practices
profit, which is often on a ratio basis. You will need to
ask the practice whether there will be a rising period to
parity. This is the length of time it takes for you to reach
the same profit share as the equivalent partner. Although
this is becoming less common, 18 months would be acceptable.
To calculate an idea of how much your likely earnings will
be you need to find the profit and loss account, this shows
the practice income and expenses for a period of time (usually
one year). Divide the profit for the year by the number
of equivalent full time partners. If the practice owns the
surgery then you will need to adjust the profit to deduct
the cost rent or notional rent income and add to the profit
the mortgage interest.
Not all practice income is shared in the profit sharing
ratios, some income is kept personally and prior allocated
to the individual partner concerned e.g. PGEA, seniority,
income earned outside the practice. The accounts should
include a schedule of how the profit has been allocated,
from this you will be able to see what income is kept personally.
If it is not clear from the accounts ask the practice.
How solvent is the practice?
The balance sheet is a snapshot of the practices assets
and liabilities at one point in time. The net assets of
the practice, which is the fixed assets plus the current
assets less the current liabilities, should be positive.
Remove the fixed asset from this, which will give you the
working capital of the practice and again this figure should
Will I need to buy in?
Buying in relates to the contribution to the assets of
the practice. So you will certainly have to buy into the
fixed assets and working capital of the practice. If the
practice owns the surgery then at a later date you may also
have the opportunity to buy into the premises.
To get an idea of how much you may need to pay to buy in
for the assets and working capital, look at the partner's
current accounts on the balance sheet. This shows how much
the partners have left in the practice and ideally this
should be in proportion to their profit shares.
You can either buy in by raising finance and putting the
money into the practice or by underdrawing. If the preferred
route is to underdraw you will need to ask the practice
what period is acceptable. Underdrawing is where you will
take less drawings from the practice than you are entitled
to so that you can build up your current account.
Buying into the premises should be dealt with separately.
It's possible that the property will be owned in different
proportions to the profit sharing ratios. You will be entitled
to a share of the cost rent or notional rent income after
deduction of the mortgage interest.
What happens about tax?
As a partner in a practice your status will become self
employed. If you are employed then you will need to register
as self employed with the Inland Revenue within three months
of commencing in partnership.
You are taxed on your share of profits from the practice
as opposed to your actual drawings taken from the practice.
You will need to ask the practice whether the partners
pay their tax personally or through the practice. If the
practice pays the tax then your drawings will be adjusted
to deduct an amount for tax, which will be saved to pay
your tax liabilities.
If you will be responsible for paying your own tax then
the practice will pay you your gross drawings. It is advisable
to set up a separate savings account and transfer a regular
monthly amount of about 30% of your drawings.
What happens about superannuation
Your superannuation contributions are paid based on the
income of the practice. The PCT will split the contributions
in the profit sharing ratios and these are deducted before
the practice receives its income. You will need to ensure
that the practice has informed the PCT of the date you became
a partner and your profit sharing ratio.
The practice should have a partnership agreement in place
when you start as a partner. You should have the partnership
agreement reviewed by a solicitor who specialises in the
affairs of GP's.
You may also wish to ask an accountant who specialises
in the medical profession to review the accounts for their
opinion of the practice.