Is your Practice Considering Taking on New Partners?

We are pleased to see that our clients are now starting to take on new partners again. We are also getting enquiries from potential new partners asking us to review partnership accounts. This is all good news but this process should be carried out at a steady pace and giving good consideration to a whole range of different aspects which are reviewed below.

Ethos of the Practice

It is important that a new partner has the same ethos as the current partners. This means considering their view of the NHS in general, their clinical methods and most importantly, their financial objectives and vision of the future of the practice.

Clinical Ability

This goes without saying but it is helpful to have worked with the individual being offered the position, either as a locum or as is commonly the case, as a salaried GP. Some practices offer a salaried position first with a view to partnership. This opportunity can, of course, be offered to your GP Registrar if you have one, if you think that they would be an asset to the partnership.

Initial and ongoing profit-sharing arrangements

Profit-sharing arrangements must be made very clear from the start and in particular, ensuring that new partners understand that they will be required to pay both their tax, national insurance and their pension from their profit share. Profits are often not paid out in full initially and so a salaried GP may find that their monthly income is less than it was as a salaried GP but it will improve in the long run.

• Fixed Share Basis – This can be a starting point, particularly for less experienced GPs during the first six months’ initial assessment period, just in case things don’t work out. This keeps the sharing of profit simple for that initial period if you mutually decide to part ways. It can also be usefully used to take a new partner to the start of the next accounting year when they can take a percentage share, if they have started mid-year. This avoids complicated profit sharing calculations part way through an accounting year.
• Rising to Parity – This tends to depend on two things – the experience of the new partner and the level of profits earned by the practice. You might feel that a new partner who has been a salaried GP with the practice for the last few years, deserves to start at full parity. Alternatively, if the practice is particularly high earning, it may not be appropriate to start a new or junior partner at full parity if this increases their earnings significantly. Having a couple of steps to full parity may be better, say fixed share for six months or to the end of the next accounting year, six months at 80% and six months at 90%.
• Prior Shares – This should be considered carefully. Sometimes a partner may carry out additional work outside their sessions which brings in additional income. This might be as a CCG Lead or Training. Alternatively, there may be an agreement to do additional sessions if a partner or salaried GP is sick and this may mean that a separate payment is made. The amount should be agreed at the outset. Prior shares can also include costs such as each partner’s medical defence. These additional payments must be made clear to a new incoming partner as it can sometimes take them by surprise if certain income is shown as to due to one or two specific partners.

There are numerous ways to arrange this but ultimately, it may be down to negotiation with the GP.

Buying-in and New to Partnership Payment Scheme

All partners in practice need to invest in the business and put in some capital to assist with the running of the practice. We call this working capital. For a new partner, this is still sometimes called ‘buying in’. This can be done either by putting a lump sum into the practice as soon as parity is reached but more often is done by the new partner under-drawing their profits over the first two years to build up that capital. However, there is now a further option with the introduction of the New to Partnership Payment Scheme.

• New to Partnership Payment Scheme – this is a new scheme which was introduced in April 2020 for GPs who have never been in partnership before. It offers new partners £20,000 plus £4,000 towards tax and NI per full time equivalent GP. The practice is obliged to pass this payment on to the new partner in full within 28 days of receipt. However, it could be used to fund the practice working capital and we would strongly recommend that it is used for this purpose. One clear reason is that should the new partner decide not to remain a partner for the full five years as required by the scheme, the payment becomes repayable in full or in part depending on long they have been a partner. Holding the money as practice capital will then protect the practice, which will be required to make the repayment, and avoid the need to request any payment back from the partner concerned. However, the retention of this must be agreed with the new partner or you could be found in breach of the S96 agreement which governs the scheme which all parties will have signed. The new partner needs to apply for this scheme but the practice is required to confirm their eligibility and number of sessions worked each year, as changes will result in repayments or additional payments accordingly.
• · Buying-in to Property – this is not the same as ‘buying-in’ and should be treated as a completely separate arrangement to the general partnership. It needs to be made clear at the outset as to whether this is a requirement of being a partner in your practice. However, it may limit your choice of partner as many do not like the idea of buying into property. It is probably wise not to allow purchase until the new partner has been with you for at least a year to ensure that you are all happy with the arrangement.

Partnership Agreement

When new partners join a practice, the previous partnership agreement becomes void and a new partnership agreement must be drawn up. This is one of the most important elements of taking on a new partner and ideally should be in place before they start. This should be drawn up by a medical specialist solicitor and include a clear description of the profit-sharing arrangements. A new agreement should now include a clause to encompass the arrangements for repaying the New to Partnership Payment should this be required.

It is always wise to ask us to review it for you too, in case incorrect assumptions have been made about how profits are shared.

A potential issue can relate to the impact that outside work can have on the partnership. You need to be clear from the start what is and what isn’t allowed and whether you will have the right to force limits on outside work if you feel that the outside work is having a detrimental affect on the partner’s work at the practice.

Here at RBP, the partners have wide experience of dealing with incoming partners and can advise practices on the best way to take on a new partner taking into consideration your practice’s profit sharing arrangements. We are also able to produce drawings projections so that the new partner knows what drawings they can expect together with how much needs to be put aside for tax.