How to prepare your year-end accounts

How to prepare your year-end accounts

Our Managing Director Jane Braithwaite has written her top tips to help you prepare those all-important end-of-year accounts. 

All businesses must prepare end-of-year accounts, but the exact requirements vary depending on the business’s legal structure.

Sole traders and partnerships will need to prepare year-end accounts, often referred to as Trading accounts, to assess how much tax must be paid, but it is also good business practice to review your accounts throughout the year to assess opportunities for financial improvements to be made.

A private limited company must prepare full (‘statutory’) annual accounts and a company tax return, sometimes known as a Corporation Tax Computation. These accounts must be submitted within the deadlines specified by Companies House and HMRC.

Here are our top tips for helping you to prepare your year-end accounts.

Sole Trader accounts
You are required, by law, to prepare your accounts and submit your tax return by 31st January each year.
Specifically, you must keep your income and expenditure records and maintain these records for five years from each 31st January tax submission date. HMRC could request your records, and they must be ready if required.
The records you must keep are as follows: –

  • Business Income – all your income for the services you provide as a sole trader
  • Personal income – income you receive from other sources, for example, investments, dividends, Share disposals , pension payments and draw downs and buy-to-let properties. This income must also be declared and will affect the amount of tax you pay.
  • Expenditure – All payments you made during the year to run your business including any gift aid donations made
  • Payroll – If you employ staff, you will need a record of wages paid through the HMRC’s PAYE scheme.
  • VAT – In private healthcare, you are unlikely to need to worry about VAT, but this is important for businesses in other industry sectors.

Taxes
As a sole trader, there are three main forms of taxes as listed: –

  • Income tax on your net profit
  • Class 2 and Class 4 National Insurance contributions
  • VAT (if appropriate and if your turnover is more than the threshold for the tax year)

More about expenditure
Your expenditure has a significant impact on your profits which in turn affects the amount of tax you pay, and so it is very important to include all appropriate expenses. There is a very clear list of the allowable expenses on the HMRC website titled “Expenses if you are self-employed”.
You are permitted to claim a proportion of expenditure on items that relate to both personal and business, with the best example being your mobile phone costs. You can calculate the proportion of your usage which is business rather than personal and make a claim for the business-related amount.
If you work from home, you can also make a claim for associated expenses.
For any expenses that you claim, you must have receipts and you must maintain these for five years as proof for HMRC in case they request to see your accounts and evidence of expenditure.

Bank accounts
There is no requirement for a sole trader to have a separate bank account for their business transactions, but it is wise to do so for practical reasons. It is much easier to track your income and expenditure if it is all managed via a separate bank account. Sorting out your business expenses from your personal expenses is very time consuming if they are all mixed into one bank account.

At some point, you might also use a finance system such as Xero for managing your bookkeeping. These systems allow you to set up an automatic bank feed so that all your transactions are uploaded into the system, reducing manual data entry. This works well if you have a separate account for your business.

Limited Companies
If you are running a private limited company, at the end of each financial year, you must prepare full ‘statutory’ accounts and your Company Tax Return. Financial year-end reporting is a legal requirement to ensure your company pays the right amount of tax. But there is additional value as it shares vital information about your company with interested parties such as shareholders and banks. Producing your statutory accounts is also an invaluable way for you as a business owner to understand your day-to-day operational costs and all the other key aspects of your business’s finances.

Most businesses employ an accountant to prepare their yearend accounts and company tax return. However, it is still vital that the business owner and other key stakeholders have a very clear understanding of the accounts and the implications for the business.

Financial year
Your financial year can run at any time in the year and for most businesses, this will be set by the date your first launched your business. The UK tax year runs from April and many businesses adhere to this for ease, but there is no requirement to do so. Your financial year is usually the same as your accounting period for corporation tax. This is the period on which you need to report, these dates can be changed at Companies House if required

Statutory Annual Accounts
The purpose of your statutory accounts is to clearly describe your company’s financial activity in the year for tax purposes and to provide accurate information about your company’s financial performance. Your Statutory Accounts are the documents you send to Companies House.

The accounts will provide a summary, describing overall outgoings and income rather than detailing individual transactions. There are different types of accounts that can be submitted depending on turnover and balance sheet value but an example of the data required is shown in the following sections and it is important to note that the Statement of financial position and the Footnotes will be available publicly at Companies House for all to view.
• Income Statement – Profit or loss
• Statement of financial position – The value of your company, determined by your assets and liabilities.
• Director’s report – A statement from the board of directors
• Footnotes – Points for clarification
Company Tax Return
Your Company Tax Return (form CT600) is the document you send to HMRC. It contains details of your turnover, expenses, tax allowances, and profit in the form of the company’s Statutory Accounts. HMRC uses this information to calculate how much you owe in corporation tax, although if you have engaged an accountant, they will have given you an estimate already.

Timescales and deadlines
You must produce your accounts and tax return to meet the filing deadlines set by Companies House and HMRC. Your first set of accounts must be produced within 21 months of registering your business with Companies House. You may need to submit an additional tax return in year one. After year one you must produce your accounts and pay your tax due within 9 months of your financial year-end.
Penalties
Both HMRC and Companies House will charge you penalties if you are late submitting your accounts and tax returns and the penalties range from £ 150 to £ 15000 depending on how many months late you are. In the worst-case scenario, your company can be struck off so the deadlines must be taken seriously.
Other reporting responsibilities
There are other reporting responsibilities and whilst they are not technically part of year-end reporting, they can be done at the same time for convenience. These include your VAT returns (if the company is VAT-registered) and your Annual Confirmation Statement.
VAT returns
Most doctors working in private practice are not VAT registered, but VAT does apply to some companies working in the healthcare sector. If relevant, your VAT return will be due every quarter, this must be filed and paid by the 7th of the month following the end of the period ie: VAT quarter ends 31st January, submission and payment due 7th March
Confirmation Statement
By law, each year you must confirm your company information with Companies House. You must file the statement within 14 days of its due date, which is a year after your incorporation date, and then each year from now on. You must do this even for a dormant company, and failure to do this may be deemed a criminal offence.

Our top tips
Whether you established your practice as a sole trader or limited company, the key to making your year end accounts a simple task is by maintaining good records during the year. If you are using a good Practice Management System (PMS) you will have good records of income, payments received and aged debt. Make it a habit to do a monthly review of these figures so that you can identify any anomalies at the earliest stage. Keep a very close eye on aged debt and take action if it starts to build up.

To ensure you have an accurate record of your expenditure you must take bookkeeping seriously. To help motivate you, expenses reduce your profits which in turn reduces your tax liability so don’t miss anything out. Make it a habit to record all expenditure at the time the expense is incurred and keep copies of invoices and receipts. If you fail to do this, you will spend hours wading through bank statements and credit card statements at year end trying to remember what each payment was for and you will undoubtedly miss some expenses. Either use an excel spreadsheet or invest in a professional system such as Xero. To avoid building up paper files, that need to be stored in your office, scan your invoices and receipts into a folder and back this up.

Set up a separate bank account for your business transactions on day one.
If you employ staff, then you must maintain accurate payroll records. Failing to do so can lead to mistakes in tax and national insurance so check these records regularly. If your staff claim expenses, ensure they provide you with receipts for you to store securely.

As your business grows, look at ways to automate your bookkeeping as much as possible. Using Xero and automated bank feeds you can eliminate manual uploads which saves time and reduces error.

It is worth investing in expert help, by engaging an accountant to produce your year-end account, particularly if your practice is a limited company, but of course, there is a cost involved. Providing your accountant with good records will definitely save you money as their work will be so much easier and faster. Dumping a box full of receipts and invoices on your accountants desk will definitely cost you dearly. The professional advice your accountant provides you regarding tax will be valuable and give you piece of mind that you are going to avoid any problems with HMRC. And of course, you can claim the cost as an expense in your accounts!

Within Designated Medical we have a team of bookkeepers and accountants who manage billing, bookkeeping and accountancy on behalf of our clients. If you need any advice, please contact Vicky Garbett who heads up our accountancy team.

 

 

My partners have left me in the lurch

My partners have left me in the lurch

Our Managing Director Jane Braithwaite has been tackling difficult questions arising from discussions in the digital issues of Independent Practitioner Today. This month she responds to a consultant’s ‘bombshell’.

‘I work in a group with two other partners who have both dropped the bombshell that they are aiming to retire next April. I want to keep my practice going for some years. How do I manage this situation?’

Hearing that the other partners in your group are about to retire with relatively little warning can be anxiety-inducing, to say the least.

You might think that your business is about to disappear or that your income is going to significantly decrease. But with a little planning and careful discussions with your partners, this does not have to be the case.

I can also tell you how to manage partners leaving your group through retirement, with ways to facilitate the transition, and how the group could continue to thrive after they have left.

Look to the start of the group

When the group was formed, hopefully contracts and agreements were drawn up. Buried deep in there should be the mechanism for a partner to voluntarily leave the group.

The contract should spell out how much notice the partner should give, what rights they have to any profit in the group at the time of leaving and any obligations of the group to the partner after they have left.

Of prime importance from a clinical standpoint is deciding who is going to look after the exiting partner’s patients and how to facilitate a clear and comprehensive handover.

Financial obligations can be difficult to disentangle, with the issue of ongoing profits derived from patients that the leaving partner acquired being particularly thorny. Hopefully, this should all be spelled out in the agreement signed on formation of the group.

Things become much trickier if there was no founding agreement, or the agreement does not cover the retirement of partners.

This situation can only be resolved by careful negotiation between the remaining partner and those who are leaving.

What should this plan involve?

It is very unlikely that you would be able to convince your partners not to retire, and you probably shouldn’t try. What is important is that you come to a plan that works for you, for them and for the group and its patients.

In the meetings that you need to call to sort this out, it is important that everyone is open and honest about what they want to get from the process, with their objectives and priorities clearly stated.

You may think that your partners want to ensure that they get the maximum value for their ‘share’ of the group, but they may be more interested in an orderly transition and the stability of the group than maximising their personal profit.

The outcome that you need to get from your meetings is a written agreement on how your partners will exit the group. This will protect both your interest and theirs and allow an orderly process for their retirement.

You do not need to shut the group down, but it is unlikely that it will be able to continue in exactly the same way with only one third of the partners left.

Having a plan in place will allow you to prepare for the transition and allow you to make changes to the form and function of the group as you see fit.

What options are there to change the practice?

Before leaping to a decision, it is worth thinking about what form you would like the group to have. Consider how the group was before the partners retired. Were you happy with the structure?

One option might be for you to take over the entire practice by yourself. The advantages of this are that you would have sole control over the direction of the practice and all the rewards of this hard work would be yours.

On the other hand, if the workload was previously shared between three colleagues, you may find that it is not manageable by yourself.

If you do decide to take over your partner’s shares of the group, you will need to decide how you ‘inherit’ their patients.

It is important from a clinical standpoint that the patients experience continuity of care as they transition from one clinician to another.

Compensation payment

Your partners may want some form of compensation for passing their patients to you. This could take the form of a one-off payment or an on-going reward dependent on the revenue that the patient brings to the group.

The nature of this financial return should hopefully be spelled out in the contracts that you signed when the group was formed. If this is not covered in any agreement, then it will need to be negotiated as part of the exit process of your partners.

If you feel that the workload is not manageable alone and you wish to keep the current number of patients, then you will have to look for other partners to join the group.

While the complexities of recruitment to join a group practice are beyond the scope of this article, there are a few things that are important.

Rather than just co-opting the first consultant that you can find, consider what skills and knowledge would complement your own. Is there particular training or background that may help the group expand revenues and offer new services in the future?

Take time to make sure that all the legal work is completed correctly, with the help of an expert. Ensure that those who join sign a contract, so that everyone is aware of their new responsibilities to the group.

Employ staff

If you feel that some of the workload could be managed without the direct input of a consultant, you may be able to employ staff such as nurses to undertake clinical tasks on your behalf. This can help make sure that your limited time is used for activities that only you can perform.

If you do not currently employ clinical staff, careful advice is needed to ensure that you are providing a service that is safe and well-supervised, with on-going training and professional development.

If your partners announce they are going to retire, it is important not to panic. While it may feel like you are about to lose the business that you worked so hard for, this is not the case.

There are a number of ways that a group could continue, either in its current form or by altering its structure.

Change can be uncomfortable, but it is inevitable. This may give you the opportunity to push the group in new directions, with great personal and professional rewards.

We have a team dedicated to marketing private medical practice and have a wealth of experience for you to tap into.  Call us today 020 7952 1008 or via send us an email at info@designatedmedical.com.

Managing Director Jane Braithwaite regularly writes for the Independent Practitioner Today, with this article first being published here.

 

 

‘It’s good to talk’ to defuse disharmony

‘It’s good to talk’ to defuse disharmony

Our Managing Director writes about how to ease tensions within a private practice. First published in Independent Practitioner Today.

Tensions are not uncommon when consultants get together to form groups in private practice in the current financial climate. Our Troubleshooter Jane Braithwaite tackles an appeal for help. 

‘We have been working in a group for two years now and we are starting to experience tensions between us. How do we manage these tensions without breaking up the group?’ 

Running a busy private practice group can be rewarding but time-consuming at the best of times. If you are experiencing disagreements with the other members of your group, it can feel overwhelming.  

Tensions, disagreements or even arguments can be common, especially among the high-performing clinicians that make up your group. 

This article will look at how to approach your colleagues to diffuse this tension, how to reduce the chance of divisions going forward and what steps to take if you feel the situation is irretrievable and the group needs to be dissolved. 

There are a number of steps you can take to resolve this situation. 

Tensions are common  

The nature of a group can lead to building tensions. It is rare that everyone in the group has exactly the same goals, both professionally and personally.  

These slight differences in objective can lead to stress, which can manifest in many different ways. 

The reasons for these disputes vary from person to person and from group to group. They could be related to individual financial problems, the clinical direction that the group is moving in, the way work is allocated or how profit is distributed.  

Whatever the cause, it will be essential to see the problem from everyone’s point of view in order to come to an amicable solution. 

How to start the discussion 

The process of understanding the problems within the group and addressing them is key.  

One of the best methods is a meeting to talk through all the issues. Everyone must be present, because if someone feels excluded, it may lead to resentment and the underlying problems cannot get solved. 

At the outset, you should set the expectation that these meetings are the forum to talk through all the tensions, with no side discussions or confidential chats that do not involve all members of the group. 

This meeting aims to bring up all the problems that people feel are holding the group back, work together to find a solution and decide how it will be implemented. 

How to structure the discussion 

If you lead or manage the group, you may feel it is natural that you take charge of this meeting.  

Depending on what needs to be discussed or what the underlying issues are, the other members may find it more difficult to be open and honest if one person appears to have more sway than the rest. 

To ensure that there is no power imbalance in the discussions, you might find that having an independent person to chair the meeting can help things flow a bit better. They can help keep the meeting on topic and make certain that everyone is having their say. 

If you have significant problems within the group, it is likely that this meeting will involve a degree of confrontation.  

This is never a comfortable position to be in, both for yourself and others. Going into this meeting prepared, either by having thought through what needs to be said or bringing notes with you, will make sure that you can manage to get your point across. 

Psychologist Bruce Tuckman described the stages that teams go through when working on a project together. He named these stages ‘forming, storming, norming, performing’.  

The ‘storming’ stage is characterised by potential conflict between members as everyone tries to work out individual roles and pushes against boundaries. 

It may be that, as a group, you have entered the ‘storming’ stage, with its uncomfortable conflicts, and that you need to work through to reach ‘norming’, where everyone resolves their differences, and ‘performing’ where members work together to achieve the group’s goals. 

If you can push together through this difficult stage, you may find that you have bonded better as a team and can attain greater success in the future. 

How could the process go wrong? 

Any situation involving confrontation is fraught with pitfalls. 

If relationships within the group are already fractured, there may be considerable resistance to bringing about the meeting. Sometimes in these circumstances, there is one member of the group who can act as a ‘peacemaker’ and bring the others together. 

It can be tempting to phrase all communications about these meetings in hard-nosed business language. By humanising what you say and acknowledging your own and others’ discomfort with the situation, you might find that everyone can open up a bit more about the problems that they see. 

Some people may find this level of discomfort and confrontation intolerable and, rather than face the issues, may choose to leave the group. 

 If there is no way to bring about a meeting between members, then the business relationship, and thus the group itself, may not be salvageable. At this point, the advice of experts such as lawyers and accountants will become invaluable. 

How can we improve in the future? 

If you have managed to have these discussions, then you have taken a difficult but important step for your business. It would be a shame now to slip back into your old ways and find that the same problems and conflicts are continued. 

Look back at the contracts and agreements that you had drawn up when you formed the group. Do these still reflect the way the business is run? You may find that you have altered some of the roles, responsibilities and functions of group members and may wish to put this down in writing in new contracts. 

You will need an agreed structure for the future and this should be documented and signed by all members of the group.  

If necessary, you should seek advice about drafting these new contracts and agreements to make sure that everyone has clarity about what they can expect of others and what others will expect of them. 

Ongoing communication will be essential, perhaps in the form of a monthly group meeting. This will provide a forum for issues to be aired while they are still small and easily solvable and allow them to be dealt with before they become a threat to the group. 

What if the group cannot be salvaged? 

Sadly, it is not uncommon for dis­agreements to snowball, ending up with a break-up of the group.  

If your founding agreements included provisions for dissolving the group, then this process will be much easier. 

If the initial contracts did not cover this, then it will be necessary to negotiate with the other members of the group to find an amicable way to split the assets. This could be complicated and having the advice and input of experts as early as possible is advised. 

Managing conflicts, tensions and disagreements in a group can be difficult. If you can find a way to bring everyone together as a team, where each individual is empowered to raise problems, you may find that the resulting group functions much better than before. 

If you have any specific questions that you would like answered in upcoming editions, please do feel free to get in touch. 

Info@designatedmedical.com or call 020 7952 1008

 

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