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Financial Considerations for GP partnerships

When you started medical school did you realise the broad range of skills you'd need to develop in order to become a GP? Alongside your medical knowledge you need to be a first-class communicator, develop advanced problem-solving abilities, keep on top of the various targets set by government, become an IT guru, and keep cool under all the pressure.

If you become a partner in your GP practice, you'll also take on the role of business owner and will need to further develop your expertise in order to:

  • recruit and support team members
  • develop practice services
  • conduct audits, for example to ensure you satisfy Care Quality Commission standards
  • effectively manage finances to ensure your practice remains profitable.

Helping to run a successful, profitable practice should mean you're able to reap the financial rewards of all the hard work you've invested in developing yourself and your business, over time.

When it comes to managing your commercial and personal finances, there are a number of important decisions you'll need to make in order to maximise profits and minimise liabilities. We've outlined a few of the consideration you may need to think about.

Managing your cash flow

You'll be aware of the importance of setting aside enough money to maintain adequate cash flow for your practice. This will allow you to cover any unplanned costs that arise throughout the year such as:

  • replacing essential equipment
  • delays in receiving payment for services
  • lower than expected monthly profits
  • changes to staff salaries
  • the unanticipated withdrawal of a partner from the practice.

Once you've set this money aside, the remainder of your share of the profit can be used to cover your personal living costs (effectively your monthly wage). You may find the share of profits you're left with, once you've assigned money for business costs, and monthly expenses, leaves you with a cash lump sum which you'll want to manage in a tax-efficient way.

£1,000 in interest, tax-free

Your personal savings allowance (PSA) means that you can earn a certain amount of income from savings and investments before you need to start paying tax on the interest.

Your PSA will depend on how much you earn (your income tax band) and for the 2019/20 tax year the PSA bands are:
Income tax band Income band Personal Savings Allowance
Basic rate £12,500 to £50,000 £1,000
Higher rate £50,001 to £150,000 £500
Additional rate Over £150,000 £0

If you have a PSA, it can be tempting to keep your income in cash savings as this is considered 'low-risk'. But low-risk doesn't mean 'no-risk'. This is because unless the interest you earn on savings is outperforming inflation, it's value could decrease, in real terms, over time.

Simply put, inflation is a measure of how much prices increase over time (meaning you're able to buy less with the same value of money - £1 today, for example, buys you much less than it would have 30 years ago).

For the purposes of illustration, let's assume that the rate of inflation is 1%. If you put £10,000 into a bank account with 0% interest, in real terms it would lose £915.18 in value over a ten-year period.

Inflation is forecasted (as measured by the Consumer Price Index - CPI) to be 2.4% in Q1 of 2019 and 1.8% for Q1 of 2020 (Office for Budget Responsibility, February 2019).

Once the interest you earn on your savings exceeds your PSA, it will start to be taxed. Tax on savings interest above your PSA applies to savings held in:

  • bank and building societies
  • savings and credit union accounts
  • open-ended investment companies (OEICs), investment trusts and unit trusts
  • peer-to-peer lending platforms
  • government or company bonds
  • life annuity payments
  • some life insurance contracts.

One way to manage the tax you're liable to pay on your savings interest is via a tax-free wrapper such as an Individual Savings Account (ISA).

Tax-efficient savings and investments

It's important to aim for 'real' returns on your savings and investments - avoiding unnecessary tax charges, and aiming to beat inflation over time. You may be able to achieve this by having the right mix of investments in place.

Putting your money into assets other than cash (such as bonds, property, or shares) carries different levels of investment risk. By taking on more risk, you can generally give your money a greater opportunity to grow over the long term.

They may give you real returns over and above the rate of inflation but it's important to remember that the value of your investments could fall, and you may get back less than you put in.

We've put together a free Quick Guide to Investing to help you understand your options - get your copy online today.

This information is based on our understanding of current legislation. Legislation and tax law depends on the circumstances of each individual and can change in the future.

Please remember the value of investments and any income can go down as well as up and you may get back less than you invest.


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