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
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 non-NHS income, it is very difficult
to determine how much of salaries, heat and light, rent etc relate
to non-NHS income. For most GP’s, expenses will be split
based on the ratio of non-NHS income to total income (standard
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
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
Box 5 – Should include your share of
non-NHS income from the partnership e.g. private fees. The total
non-NHS 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 non-NHS 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 non-NHS
income to total income ratio. This is calculated by dividing Dr
A’s non-NHS income (box 7) of £8,012 by his total
NHS and non-NHS income (box 4) of £202,420 this is 3.96%.
If your non-NHS income to total income ratio
is more than 10% and your non-NHS 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
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
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 non-NHS 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 non-NHS expenses. As
your ratio of non-NHS income to total income ratio (box 8) is
below 10% and your non-NHS income is below £25,000 you can
use the standard method. The standard method calculates your non-NHS
expenses based on the non-NHS to income ratio (box 8). For Dr
A his non-NHS income ratio is the 3.96% (as calculated in box
8) multiplied by total expenses of £114,561 (box 12) which
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 co-op 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.