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All you need to know about joining
a partnership
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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 be positive.
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.
Partnership agreement
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.
June 2003
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