Top tips for the newly appointed consultant
Without doubt, a secretary can make or break a private practice so choose wisely. If you are happy with your NHS secretary then why not see if they are interested in helping, many do.
It is important that you define roles with regards to secretarial support and understand if they can produce the necessary accounting function for billing and importantly chasing debts.
Secretaries commonly perform work for several private practices and use practice management software which can bring significant benefits to a practice.
Understand your tax obligations
My key message here is that you are running a business and while the work performed mirrors the NHS there are various legal obligations when running a business that you must understand.
The tax system can be complicated and it is different whether you are a self-employed individual or trade in partnership or a limited company.
Whichever route you take it is important to spend the time going through things with an accountant, more than once if needed, to ensure the basics are understood and you know how much to save to ensure your tax obligations are met when they fall due.
Appoint an accountant
We are not all the same so as with the secretary, choose wisely. The medical sector is specialised and having an accountant with detailed knowledge of the medical sector should ensure you are based placed in the ever-changing world of medicine.
Many will not have needed an accountant in the past so meet up and discuss things face to face. I meet many new consultants every year and I never expect them to have detailed knowledge. I go through the aspects I know they are thinking about and the ones they don’t!
One question that you will need to dust off the crystal ball to answer is the ‘how much are you going to earn in the next year?’ that the insurer or defence body will ask.
The higher the number, the higher the premium but it is clearly a false economy to understate the figures and could leave you with significant financial risk. Just be realistic and contact them again if the figure you gave is under or overstated. They don’t expect you to be spot on but do expect you to pay a retrospective premium if the work performed was higher than declared.
You are allowed to deduct the defence premium against your income for tax purposes along with any addition premium that may be levied.
Certain specialties carry substantial premiums e.g. neurosurgery and obstetrics so alternative avenues for private work such as medico-legal work are often considered which carry much lower indemnity premiums.
Before you start trading you will incur set up costs so having an accounting system early on is essential to ensure all expenses incurred are claimed as expenses.
Simple spreadsheets are fine initially but bespoke practice management packages can provide significant efficiencies and pay for themselves quickly so these are highly recommended. Your chosen secretary may have experience and can hit this running.
As reported in Independent Practitioner Today in a number of articles, changes to the reporting of information to HMRC are on the horizon which will make pretty much all businesses use accounting software and no doubt these practice management packages will be a key part of this process.
Working in a team
You may be asked to work with other colleagues which can help share costs and risk and perhaps income as well.
If you are asked to join an established group or form a new one, professional advice is really important to understand your obligations and the financial risks and rewards of being part of the arrangement. Again, having an accountant that has knowledge in this area can be invaluable.
When you commence your private practice and thereafter it important that your chosen tax structure to trade meets your needs and is tax efficient. This may be the simpler self-employed structure or perhaps a partnership with your spouse but commonly this involves trading as a limited company.
Trading as a company does have more responsibilities and administration but can be a more tax efficient and flexible structure. The choice of structure is not a one size fits all approach and therefore you should discuss your individual circumstances with your accountant and take their advice. It may be that you start with one structure and transition to another later.
Over the last decade or so there have been big changes to public sector pensions and in particular the NHS Pension Scheme.
We now have a situation where there are three different NHS pension schemes, the 1995, 2008 and 2015 schemes. Each one has its own rules regarding how much your pension grows by each year which affects the ultimate pension award as well as the expected retirement age.
For newly appointed consultants they will almost certainly be in the 2015 pension scheme but also have benefits in either the 1995 or 2008 schemes for their membership up to 31 March 2015.
Running alongside these changes to the NHS pension rules has been much tinkering by the government around how large your pension can be before additional tax charges are payable and on how fast it can grow each year before a tax charge arises.
It is the latter of these that has become the most important area of taxation for a consultant whether newly in post or established due to the very real possibility of having to pay a tax charge because of your pension growing too quickly.
This is a particularly unfair tax in my view as it is largely a penalty for working hard and achieving.
All this is a very complex area and if your accountant cannot advise you fully in this area you need to look elsewhere.
As with medicine, accounting and tax can change regularly so it is important that you have regular contact with your accountant to ensure that you are best placed and not reacting to circumstances after they have happened.
Starting out in private practice is a great opportunity to earn additional income and run your own business. Ensuring that you plan in advance will make sure it runs smoothly and you maximise the financial benefits of your hard efforts.
Ian Tongue is a partner with Sandison Easson accountants