How to treat PAYE income in a medical partnership

What to do when PAYE tax/NIC/superann is deducted from practice income

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A client is a medical practice, where there are five partners in the partnership.  Part of the practice income comes from specific NHS initiatives, and on occassion, the NHS requires this to be paid under PAYE, and to one named individual at the practice.

While it would probably make sense for an NT tax code to be operated against this income, this has not occurred in this case, and tax/NIC/superann have been calculated on the income.

The income is that of the practice (all partners take part in the initiative), and should be allocated in line with the PSA in place.  This then means that various adjustments should be made for accounting purposes (debits to capital account of the named recipient) and also for tax purposes (full tax credit allocated to recipient).

Does anyone have an answer as to the right process to be applied in order to arrive at the correct adjustments to be made in this situation, or could point me to guidance that spells this out?  Various online searches, conversations with colleagues who deal with doctors regularly, a tax lecturer, a technical helpline and consulting the NHS superann return notes (there is a specific section on this issue) have provided conflicting information so far, hence the reason for this post. 

To be honest, the simplest way forward may be to just allocate all of the income to the named party, reported on employment pages, and accept that they get some form of reduction in their partnership share as a result, but this just feels 'wrong'.

Any thoughts? 

 

 

Replies (6)

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By Duggimon
02nd Jul 2021 09:22

The tax is one thing, and were it just tax you could figure out the equitable adjustment without too much bother, but the superannuation is a problem, four of the five partners are paying in to the fifth's pension, and it's a weird pension that you can't easily adjust.

What would be ideal would be if you could get the NHS to recognise that they shouldn't be paying five people for work done via PAYE for a single person. That's so obviously wrong that it's what I would try to get corrected.

I have no idea how you would value the superannuation part of the received payments for the purposes of redistributing the monies received to the other partners.

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By paul.benny
02nd Jul 2021 09:37

+1 about the pension. It's not the ee contribution but er and the fact that's (presumably) buying a defined benefit.

At the end of the day, you and the parties might just have to form a view based on how much is at stake and the how of the work each carried out.

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RLI
By lionofludesch
03rd Jul 2021 07:40

Imho, the NI is a bigger problem than the pension. With the pension, the fella is at least getting some benefit, albeit in the future.

With NI, the benefit is more dubious. Even illusory.

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By andrew1211
06th Jul 2021 15:22

The PAYE is charged to his drawings, but then he gets Cr for this on his TR so overall all parties would have the same net tax charge (assuming all have identical income etc). The EE NIC the same and there is some adjustor via personal tax for this I believe, bit hazy on the detail. The EE pension the same.....he has paid in and hence gets the ultimate benefit at the end. Or he might be able to negotiate to have this refunded possibly? Is the ER superann element being grossed up to income? If so the others get a higher profit than they would otherwise. The ER superann cost is then a prior share of profit to the person in question.

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Replying to andrew1211:
By ianthetaxman
06th Jul 2021 15:42

Thanks for this - interesting what you say about the EE NIC. Any further deliberations on this front?

I notice you don't mention the ER NIC. Common sense would dictate that no adjustment was needed as this isn't the individual's own cost, a view shared by others asked. However, the guidance notes on the annual superann return indicate that the capital account adjustments should include ER NIC!

Is there something somewhere that you recall lays out this action that you could point me to?

Tried speaking to HMRC technical inspector for further guidance on their manual entry at EIM03000 and the statutory references it makes, but was told 'no' and that a 'non-statutory clearance application should be made'....

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Replying to ianthetaxman:
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By andrew1211
06th Jul 2021 15:52

Not much else to say.....have NEVER adjusted ER NIC in these situations.

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