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Does taking on a non-clinical
partner impact on seniority and pensions?
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Under the new GMS contract practices can included
in their partnership partners who are non-clinical NHS staff as
long as the practice has a least one GP.
One of our clients who is a single-handed
GP wanted to know the implications of making his wife, who was
also the practice manager, a partner and sharing the profits equally.
Our client had suggested the idea as he thought
it would be a good opportunity to share his profits and reduce
the overall tax burden that he and his wife had.
His accounts for the year ended 5th April
2004 showed profits of £110,000 and he anticipated these
would increase under the new contract due to the income from the
quality and outcomes framework.
The tax and class 4 national insurance contributions
on our clients profits of £110,000 is £39,325. He
employs his wife as the practice manager and pays her a salary
of £25,000 on which he incurs employers’ national
insurance contributions of £2,609. She pays an amount of
tax and class 1 national insurance on her salary of £6,491.
In total the couple pay tax and national insurance of £48,425.
If they become a partnership the wife’s salary and
employers’ national insurance would no longer be a cost
and so the revised profits would be £137,609. If these
profits were split equally this would give them each a share of
£68,805 and the total tax they would pay on their share
of profits would be £22,433 each, saving £3,559 overall.
Although there are tax savings to be made,
we pointed out to our client that there are some implications
under the new contract which he needs to consider before deciding
how they will share the profits.
Seniority
Under the new contract seniority is calculated on the number of
years’ reckonable service in the NHS plus it is now linked
to superannuable profits. Our client has 30 years reckonable
service and is receiving seniority of £8,675p.a. If he decided
to share the profits equally with his wife and his profits were
below two thirds of the average then his seniority would be restricted.
Under the new contract if a GP’s share
of profits is between one third and two thirds of the average
then the GP would only receive 60% of their seniority entitlement.
If below one third of the average then would receive no
seniority.
If our client’s profits were between
one third and two thirds of the average he would lose an amount
of £3,470 of income and if below one third he would lose
£8,675 of income.
We suggested that if our client’s wife
became a partner that they consider sharing profits other than
equally. This is to ensure that our client does not lose any seniority
income. The only problem is that the average superannuable
profits will not be known until all GP’s have submitted
their forms detailing their individual superannuable profits.
Pensions
Under the new contract superannuation is now going to be calculated
based on a GP’s share of NHS profits. Although the
guidance on how this will be calculated has still not been issued,
it will not simply be the profits per the accounts as this includes
non-NHS income and non-NHS expenses.
Our client’s profits are £110,000,
although this would be adjusted for non NHS income and non NHS
expenses, this is an estimate of the level of profits that he
could pay superannuation on. If our client decided to share
profits equally with his wife then this would substantially reduce
the amount of NHS profits to about £68,805. When
deciding on how to share profits our client would need to ensure
that his share should at least give him the same superannuable
income as in the previous year so that this does not affect his
pension.
If our client’s wife does become a partner
they would need to decide how to share profits in the most advantageous
way so as not affect seniority income and his superannuable profits.
Certainly in the first year it may be preferable that his
wife takes a reduced share of profits until it has been established
what the average superannuable profits are for seniority and what
his profits would be for superannuation purposes.
December 2004
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