Will you or your practice be impacted by the MDU policy changes?
The Secretary of State recently announced some planned changes to the medical indemnity scheme. The plans are still in the early stages and not expected to be implemented for at least 12 to 18 months, but it seems clear that the state will be playing a larger role in medical defence insurance in future, which should hopefully assist in controlling the spiralling costs.
In response, the MDU announced that it will move from an occurrence based policy to a claims-made policy. Their rationale for doing so was to reduce the cost of the premium. It is not yet clear whether other insurers will follow MDU’s lead.
To understand the consequences of the MDU’s announcement, it is necessary to be clear on the difference between the two policy types:
An occurrence policy protects you from any covered incident that occurs during the policy period, regardless of when a claim is filed – even if this is after the policy has been cancelled. This means that when you retire, you can do so safe in the knowledge that if a problem should ever arise from your time in practice, you will be covered. It also makes it easier to switch insurers, because a new insurer does not need to concern themselves with the risk associated with events that happened previously: they just need to understand where and how you will be practising in future.
A claims-made policy protects you from any covered incident that is claimed for whilst the policy is in force, regardless of when the actual incident occurred. When you stop paying the premium the cover stops, even if the incident occurred whilst the policy was in force. This means that when you retire (and stop paying your insurance premiums), you are not covered for any claims that may arise relating to your time in practice unless you buy “run-off” insurance. Such cover can be expensive, so make certain you understand how the premium will be calculated before signing up to the policy.
Switching from an occurrence policy to a claims-made policy is likely to save you money in the short term, since the occurrence policy will cover everything arising from the past, and an incident would have to both occur and a claim be made in the first year of the new claims-made policy for it to be covered. However, this ‘saving’ will likely catch up with you when you need to buy run-off cover to retire or move back to occurrence based insurance. The Government has stated that they do not currently plan to offer run-off cover in the state-backed scheme.
If you are considering taking out claims-made insurance, here are some things you should consider:
- Firstly (and most obviously) don’t let your existing professional indemnity insurance lapse until the new scheme is active and you have the policy in place.
- Look at your partnership deed – it may prohibit you from taking out claims-made insurance, and even if it is not prohibited, it probably doesn’t explain how to deal with the risks of a claims-made policy and in particular the risk that a retiring partner doesn’t buy adequate run-off cover. It is difficult to ensure a retired partner maintains run-off cover once they have left the partnership, which leaves the remaining partners at a risk of picking up residual liability in the unfortunate event of a claim being made (see our recent article on joint and several liability).
- Check the status of any clinical employees and sub-contractors – are they expecting to be covered by the practice’s medical defence insurance? They will most likely want to reassure themselves that they are covered for all their actions whilst employed, regardless of when a claim is received. This will need to be set out in employment contracts and locum agreements.
- If you’re considering merging with another practice, you will be well advised to investigate the type of insurance policies which have been and currently are in place, since claims-made policies will enable the risk to transfer from one practice to another. This is likely to significantly increase the amount of due diligence that practices should undertake before considering a merger.
Our recommendations:
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
- Discuss with insurance brokers whether there are opportunities for remaining within an occurrence-based insurance scheme until any government alternative is avalable
- If you are considering moving to a claims-based policy, seek legal advice on how this will impact your partnership agreement, employment contracts and other key contracts.
- If you do decide to stay on an occurrence-based scheme, then you should ideally ensure that all partners are obliged to do the same We would recommend seeking the help of specialist, professional advisers to help you navigate the changes to the medical indemnity scheme.
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Can a GP practice have limited liability?
As Primary Care changes, we are frequently asked about different business vehicles and in particular whether a GP practice can have limited liability. Choosing the right type of business vehicle for your GP practice is not always straightforward, and managing risk is likely to factor highly in the decision making process.In this article we look at the issue in more detail, explaining the different business vehicles and their potential implications.
Unlimited liability partnership
Most GP practices currently operate as unlimited liability partnerships. This means partners are “jointly and severally” liable in the case of any financial problems. Creditors and other litigants are free to sue all the partners in the partnership to recover their losses, regardless of who caused the problem. What is more, each partner is liable up to the value of the whole of the debt. This means that creditors are able to look to the personal assets of all of the partners until the debt is settled in full or there are no personal assets left. Although your partnership deed will specify how you share profits and losses between you, your creditors will have no regard to this and will typically simply look to find ‘the deepest pockets’.
Although unlimited joint and several liability can be a frightening concept, it has historically not been a major concern for GP Practices since the clinical negligence risks are mostly insured against. However, as practices have become larger and more complex, other risks have become important and need managing or protecting against.
Limited Liability Company (Ltd)
A limited company is the vehicle of choice for most businesses in the UK. A limited company is managed by directors and owned by shareholders. If a limited liability company is unable to pay it’s debts, it becomes insolvent. Creditors are not normally able to ask the shareholders or directors to contribute to losses, so liability is limited to the capital which the shareholders have introduced to the company, plus any other assets (such as retained profits) the company might hold. Importantly, the personal assets of shareholders and directors and generally protected from creditors.
GP practices are, in principle, able to operate as limited companies. However, the consent of NHS England is required to move the GMS or PMS contract to a limited company and they have historically been reluctant to agree. There are also regulatory restrictions about who can own a company delivering GMS or PMS services, which will need to be secured in the Company Constitution. Moving a practice from an unlimited liability partnership to a limited company is not a straightforward process, so anyone thinking of going down this route should always seek specialist legal advice first.
Another way limited companies can be used is to manage the largest risks in the partnership. For example, the surgery could be held in a limited company, while the practice is kept as an unlimited liability partnership. This is a reasonably common model for practices to adopt.
Limited Liability Partnership (LLP)
An LLP is an alternative legal structure that is commonly used by professional services firms, such as accountants and solicitors. It enables a business to operate with a partnership structure (where ownership and management are one and the same), whilst limiting the liability of the partners and protecting their personal assets. As with a limited company, it is a matter of public record how much capital each of the partners have put at risk.
We are often asked about LLPs since they superficially appear to be an obvious solution for GP practices, but they are unfortunately not permitted business vehicles for GMS or PMS contractors. If a practice were to be set up as an LLP, it would put these contracts, staff pensions, and much more at serious risk.
Other options for managing liability:
Insurance
One route partners may take to gain greater protection for their personal assets, is the purchase of specialist insurance. All NHS GPs are obliged to take out professional indemnity insurance against one of their biggest risks – professional negligence claims. The same approach can be taken to other risks to the financial wellbeing of the practice as well. Possible examples include life insurance, key man insurance, or mortgage repayment insurance.
Indemnities
As discussed above, to the outside world all partners are jointly and severally liable for the losses of the partnership. This can, of course , seem quite unfair so it is reasonably common for Partnership Deeds to provide that partners are responsible for the consequences of their own negligent or unapproved actions. These clauses are called ‘indemnities’.
Whilst fine in theory, the obvious problem with this approach is that if the individual concerned runs out of money, the other partners will still be exposed to the remaining debt. Also, it is often difficult to link a loss directly to the negligent actions of a single individual. More commonly, a problem is a result of a series of unfortunate events, where several people could have intervened, but failed to do so.
Our recommendations
Sadly, there isn’t a single, simple solution when it comes to managing liability in a GP practice. All the options we have detailed come with their own difficulties, and we are conscious that as healthcare becomes more ‘commercial’ it is also becoming more risky commercially.
We would always recommend seeking professional accounting and legal advice before making any decisions, to ensure you understand the full implications of the options which are available to you. The ‘right’ answer for your practice will depend on your individual circumstances and your appetite for risk.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Can a partner work outside of the practice?
The question of whether a GP partner can work outside of his or her practice, and under what constraints, is a common one. A survey by Pulse reveals GP partners have seen their pay drop by an average of 4%, so topping up earnings with private work can be an appealing option.
Typical scenarios include:
- A part time partner who wishes to work elsewhere in their remaining sessions
- A full time partner who wishes to work elsewhere during their annual leave
If you have a Partnership Deed
For practices with a Partnership Deed, it should clearly state what the agreed rules are, along with all associated obligations and restrictions. It should also make clear the implications of breaching such obligations, for example potential financial penalties and what may ultimately be grounds for expulsion.
A well drafted deed should include:
- A clause requiring that the partners need to give their approval for any outside work to take place
- Limitations on any such work, including the number of hours that can be done, the location, the type of work, etc
- The need to pool any unapproved outside income
- The need for any partner working elsewhere to pay back a proportion of their medical defence cover
- An obligation to act in the best interests of the partnership at all times
One area that can cause some confusion is when senior employees are called ‘partners’ – one example being a ‘salaried partner’. In these instances, you will need to refer back to the individual’s employment contract. (You can read more about the differences between a salaried and fixed share partner here – Salaried vs Fixed Share Partners).
What happens if you bend the rules?
Another area where partnerships can sometimes run into problems is when they have previously allowed partners to work elsewhere in breach of the Partnership Deed. In these cases, it is unlikely that these clauses can then be relied upon in the future.
The practice may be deemed to have varied the deed and it would be wise to seek legal advice on how best to move forward.
If you don’t have a Partnership Deed
If no deed is in place, then the answer falls to the 1890 Partnership Act. While the act itself has little to say on the subject of working outside of the practice, it does state that partners cannot compete with the partnership and must act in good faith at all times.
It is unlikely that these obligations would be breached by a moonlighting partner but it would need to be judged on a case by case basis. It would also be very difficult and expensive to try to enforce these obligations.
Our recommendations
The best protection for your business will always be to have a Partnership Deed in place that you can rely on and which clearly sets out all obligations and sanctions. If you don’t have a deed, or it is lacking, or out of date, then seek the advice of an experienced legal team.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Salaried vs Fixed Share Partners
Managing partnership changes and staffing are two of the most common issues any practice will deal with and how they are handled can have long term implications, especially in relation to a new partner joining the business.
One area that can cause confusion is the difference between a ‘Salaried Partner’ and a ‘Fixed Share Partner’. The two terms are often used interchangeably, but they are very different and it’s important that a distinction is made.
Here, we look at the key differences and the implications they may carry for your practice.
What is a fixed share partner?
A fixed share partner is an owning partner in the business. As such, they should sign the Partnership Deed and will have whatever rights and obligations are stated therein.
- As a partner they won’t have employment law protection
- They will have an agreed minimum monthly income and additionally some form of profit share
- They will share in the losses but may be indemnified against some or all of these by the other partners
- They will have injected some capital into the business
- They will be entitled to attend meetings and to participate in partnership decisions
- They will have voting rights
- They will not be controlled by other partners
- They will be taxed as self-employed individuals
- They will be entitled to opt in to the NHS partner pension scheme
- They will have some ownership over the GMS contract and potentially also the PMS contract
What is a salaried partner?
In contrast, a salaried partner is normally a title given to a senior employee. As such, they won’t sign the partnership deed and will be working under some form of employment contract (even if it is called something else).
- They will be entitled to a salary and potentially some bonuses – although usually not related to profit
- They will have full employment law protection
- They will be at no risk of sharing any losses
- They shouldn’t have any voting rights in the partnership and there will be elements of control by the other (owning) partners.
- They are taxed as an employee paying PAYE & NI
- They are entitled to opt in to the NHS employee pension scheme
- They will have no ownership over the GMS contract and would not normally have any interest in the PMS contract
- They must guard against third parties regarding them as ‘real’ partners and thereby inadvertently becoming liable for the partnership debts.
Why does it matter?
Typically, what practices are trying to achieve with a Fixed Share Partner is a partner who has many of the characteristics of an employee, while a Salaried Partner will typically be an employee with some of the characteristics of a partner. The problem is that the law only recognises employees or partners, there is no middle ground.
The most important point to remember is that the title itself does not determine the real status. That can only be established by analysing the detail of the arrangement.
If a title is mismatched to the actual legal status of the person, there is a risk of creating legal uncertainty. This could lead to any number of future problems, most of which will be costly to resolve.
Our recommendations
We will consider the pros and cons of each option in a future article, but our main piece of advice for anyone considering appointing or becoming a fixed share or salaried partner, is to ensure you are clear from the outset about the outcome you are seeking to achieve.
The starting point is to decide whether you are welcoming a new partner, or a form of senior employee. All other aspects of the role flow from there, and it is important to ensure that you don’t accidentally incorporate key features of one type into the other. This is all too easily done and the consequences of getting it wrong can be serious.
If you’re going to make staffing changes, especially if those changes are to a ‘partner’ role, please make sure you seek specialist advice to ensure the arrangement is documented appropriately.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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NHSPS lease – should you sign, take action or do nothing?
The new NHSPS lease and the prospect of significantly increased service charges continues to be a serious concern for many practices. It is a topic we have covered in detail on this blog and is one which raises many concerns for every practice affected. One question we are being asked frequently is ‘what action, if any, should we be taking now?’ With the application deadline for financial incentives to practices who sign up fast approaching, we thought it timely to update you on the current position.
The story so far…
We have successfully negotiated a number of beneficial changes to the Heads of Terms originally presented to our clients by NHSPS. However, some aspects of the service charge formula are proving difficult to agree. Our clients are awaiting revised proposals from NHSPS, but these have not been forthcoming and it is unclear when they might arrive.
Incentives to sign
The deadline to access the financial incentives on offer from NHSPS is currently set as 30 November 2017. However, given the lack of progress that has been made in getting practices to sign up, we anticipate that this deadline may be extended.
Options
Nationwide, there are very few practices which have signed the new NHSPS lease. Usually this is because the value of the incentives on offer is far outweighed by the ongoing future cost of the liabilities NHSPS is seeking to impose – particularly in relation to service charges.
This is an issue we have previously highlighted:
- What can you do about inflated NHSPS service charges?
- How to Successfully Negotiate a NHS Property Services or CHP Surgery Lease
It is important that you try not to be pressured into signing a new lease until any historic service charge disputes have been resolved and you are satisfied with the level of future service charges.
In the interim, we advise you continue to maintain service charge payments at historical levels.
Unfortunately however, this brings its own problems and cannot be seen as a long-term solution. Over time, your practice will change through partner changes, mergers, or increases/decreases in patient numbers. These changes may result in you having different requirements for your building.
If you then seek to change the basis of your occupation, such as by increasing the space you occupy, this will constitute a change in your current lease arrangements. NHSPS may choose to refuse consent unless you agree to an increased service charge for the whole.
Similarly, trying to share the potential liabilities on historic service charge claims between current, new and former partners will be a recipe for dispute.
Our recommendations
Overall, practices should only sign the lease once they are happy with the terms and any service charge issues have been resolved. It is a complex area and one with lasting financial implications, so it is always advisable to seek the advice of an experienced legal team.
If you would like our assistance, with this or any communication from NHSPS which has given rise to concern, then please do not hesitate to get in touch.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Is your surgery lease coming to an end?
GP practices are increasingly occupying their surgeries as leasehold tenants. It is a trend that has been happening for some time now, so many practices are approaching the end of their lease.
As a surgery lease is one of the most important and complex contracts a practice can enter into, it is important to plan ahead and take action early. Here are some of the key points to address in your plan:
Questions to consider
1. What are the key dates for your lease?
It is vital that you are aware of and understand the key dates specified within your current lease. Make sure you diarise the lease expiry date and also the dates of any break clauses, so you can begin to plan at least 12 months in advance.
2. Do you wish to vacate the surgery?
The default position at the end of a lease will be for you to vacate the premises before the lease expiry date. If this is what you intend to do, you need to ensure you have somewhere to move to and that NHS England is prepared to fund the new premises and change your contract accordingly.
If you wish to close the practice when you vacate the premises, then you must give NHS England sufficient notice – which is six months under GMS contracts. You would then need to close the business, which could be a lengthy process and is likely to involve staff redundancies, as well as settling various business liabilities.
3. Do you wish to remain in the surgery?
If you wish to remain in the surgery your negotiating position will be affected by the wording in your current lease. If it includes ‘Security of Tenure’ under the Landlord and Tenant Act 1954, then you will have the automatic right to renew your lease on terms similar to those in your current lease (subject to certain conditions). However, many surgery leases will specifically exclude this.
Regardless of whether you have security of tenure or not, you will need to negotiate a new lease with your landlord. Like any negotiation, it is important to understand the strength of your position, and to ensure that you negotiate in good time to secure yourself options. Bear in mind renewing a lease, can be a very different negotiation from a new occupation.
4. What happens if you do nothing?
Surprisingly, many practices continue to occupy a surgery after their lease has expired, but this can have serious implications and risks. Again, a lot will depend on the wording of your previous lease and also any correspondence you have entered into with your landlord about your current occupation.
If you continue to pay rent and it is accepted as such, then it will probably hold that some form of landlord/tenant relationship exists. But beyond that you face a number of potential problems, such as:
- The risk that the landlord could seek to recover possession
- The possibility that you may have inadvertently consented to some onerous lease terms
- The risk that you will be prejudicing your rent reimbursement.
Furthermore, any joining or leaving partner will want to understand any risks they are taking on, or be confident that they have fully left their obligations behind. These may be difficult to quantify in this situation.
In summary
There is an old saying that the ‘L’ in lease stands for liability. As some of these liabilities only crystallise around the lease expiry date, it’s important to understand what your obligations are.
Early planning for your lease expiring will both reduce your risks and improve your negotiating position. We strongly advise that you seek specialist advice early in the process.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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What can go wrong with a surgery move or redevelopment?
Making the decision to move to a new surgery, or to redevelop your existing surgery building, is a big step. In fact, it is likely to be one of the most complicated legal transactions a practice will ever undertake, carrying significant financial and legal risks.
Once you have successfully secured a share of the NHS premises development budget, you need to think about managing this complicated process.
There are too many differing scenarios for us to cover them all in this blog and not all of the issues we mention will be relevant to you, but we highlight below some of the more common problems we encounter during transactions of this nature.
1. Partnership changes during the process: change within any partnership is reasonably common, but in this situation it can create confusion as to who has certain obligations and who doesn’t. What obligations does an incoming partner take on, and will a retiring partner be released from his or her obligations? In addition, if you have agreed to sign up to a new lease, there is a risk that the number of partners may drop below the minimum number of tenants specified in the lease.
2. Signing a development agreement without District Valuer (DV) approval: the premises funding approval process must be followed to the letter. One common misconception is that DV approval can be sought once the building is up and you are ready to sign the lease. In all likelihood this is too late in the process as you are already committed.
3. Lack of understanding of the total lease costs: this is a very common issue, particularly when it comes to service charges: what non-rent costs are payable, and how will they be financed?
4. Using a limited company to try and manage risk: some practices try to manage their risks by putting the property or lease in a limited company. This is not something you should do without specialist advice, as it often results in significantly higher cost and no risk reduction.
5. Misunderstanding the difference between an agreement for lease (AfL) and a lease: the AfL binds the signatories to signing a lease – subject to certain conditions being met. All development works are therefore associated with the AfL and it can often be a year or more before they are completed. Some practices sign the AfL thinking they will be able to negotiate the lease at a later date, but this is not the case.
6. Overlooking the partnership agreement: it is important to bind all partners into the obligations under the lease and AfL. Since only a subset will be signatories of these documents, it is critical that the risk and obligations are properly shared through an up to date partnership deed. Remember that occupation of the surgery is a vital feature of the partnership so these documents must work properly together.
7. Not seeking advice from a specialist surveyor: a specialist surveyor needs to be involved in any surgery development, to ensure all works are compliant with the regulations. Otherwise, the funding will be put at risk.
8. Failure to properly consider tax: there are many potential tax savings associated with a development, but it requires careful consideration and planning if these are to be maximised. This will need to be done far in advance.
Our recommendations
In certain circumstances, it can make sense for a practice to work on resolving an issue itself – but developing a surgery, or moving premises is not one of them!
With the amount of complexity involved and so much at stake, we would advise any practice considering development, to enlist the support of an experienced team, including a specialist solicitor, surveyor, and tax adviser. That way you can ensure you have everything covered and are fully compliant and protected.
If you need help in this area, we are always happy to introduce clients to the extensive network of contacts we have built up, to help ensure the success of your practice.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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PMS contractors and the BMA model contract
The BMA model contract is a topic we recently covered in our blog: ‘What is the BMA model contract and does it apply to me?’.
Many PMS contractors assume the need to provide such a contract does not apply to them. However, the issue isn’t quite so clear cut and this may be leading some practices to inadvertently put themselves at risk.
In this post, we look at the issue in more detail to help clear up any confusion.
Which PMS contractors does the BMA Model contract apply to?
While all GMS contractors must offer the BMA model employment contract – or ‘terms no less favourable’ – PMS contractors are only obliged to if it has been stated in their contract.
In our experience, problems arise when a practice is unaware what is written in its contract. This can lead to salaried GPs being employed on non-BMA model contracts, despite there being a contractual obligation to do so.
Any PMS contractor who has signed the NHS England Standard PMS Agreement 2015/16 will have the obligation, and indeed the majority of PMS contracts we have seen over the last few years include it.
Sometimes practices can accrue the obligation unwittingly. For example, if a practice has signed a new contract following a PMS review they may not realise that the clause has been included and that they should move all their salaried GP staff onto new employment contracts.
What are the implications?
If salaried GP staff believe they are being underpaid, or have the incorrect contractual provisions, then they may seek to take action.
Whilst there is some debate about who can enforce the BMA model contract clause, there is the potential for NHS England to issue a contractual breach notice if they become aware that a PMS contractor is not offering the terms they should.
Most PMS contracts have a clause preventing third parties (such as employees or patients) from enforcing the terms of the PMS contract, however we are aware that some do not. In this case it may be possible for an aggrieved employee to enforce the clause directly, which could lead to a successful claim for historic loss of earnings.
With changes in partnerships, mergers and super-partnerships, where any such liability actually falls would be a complex legal issue to resolve.
Our recommendations
If you’re a PMS contractor and you are not sure what your current status is, then start by looking at the most recent version of your contract. Check whether or not it specifies that you have an obligation to offer the BMA model contract.
If it does and you are in breach, then we would recommend you seek advice from a specialist legal team, who will be able to guide you on your options and the best way forward.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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What can you do about inflated NHSPS service charges?
Around 1,500 GP practices in England currently operate from premises owned and managed by NHS Property Services (NHSPS). Many of these surgeries have now been contacted by NHSPS about entering into a new lease and are also facing demands for a highly inflated service charge.
The proposed service charge increases can be substantial, with charges reaching up to six figures in certain cases. So, it’s little surprise that we have been contacted by many practices who are extremely concerned about the impact the increased costs will have on their business.
The first point to bear in mind is that unless you have signed a lease and agreed to these charges, you shouldn’t feel immediately pressured and you may be within your rights to challenge them. There are also practical steps you can take that may help you negotiate with NHSPS and agree on a more manageable figure going forward.
Breaking down the costs
The invoices themselves are sometimes not very clear, as they simply lump all costs together. Begin by checking the backing sheet to break down the cost, so you’re clear on exactly what you are being charged for.
In accordance with the Premises Cost Directions, certain expenses are classed as ‘reimbursement costs’ and should sit outside the service charge. They are:
- Rent
- Rates
- Clinical waste
Other elements may also be reimbursed in part, depending on what they include. Such as:
- External repairs and maintenance for which the tenant has responsibility
- Buildings insurance
The repair costs may not be recovered in full, as they depend on the District Valuer looking at the Current Market Rent figure. This will usually include an ‘uplift’ of a small percentage (usually around 5%) which includes reimbursement for these items but in practice may not cover the whole cost. That is why it is important to control service charges; as they often not fully recovered.
All remaining items will form part of the service charge, which will typically include landscaping, litter picking, gritting and the cleaning and lighting of common areas.
Action you can take
1. If you have a lease – Check what it says about your obligations in regard to payment, as the terms of the lease will ultimately prevail. If you have signed a lease and agreed to them, then you are legally obliged to pay in accordance with the lease terms. Check what the lease says about which services the landlord must provide, how the service charge costs are worked out and what the optional services are. Ideally, your lease may have a cap beyond which the landlord cannot charge.
2. If you don’t have a lease
Our recommendations
In this situation, there is no ‘one solution fits all’. While there has been some talk of a national resolution, nothing has yet materialised. It is difficult to imagine how a single solution can suit all practices, since this kind of approach is likely to generate winners and losers.
If you don’t have a lease in place, our advice is not to feel pressured to pay the inflated charge. Follow the steps we have outlined above and try to negotiate a more acceptable amount. Resist the temptation not to pay anything, however. The safest course of action will usually be to keep paying the amount you have historically paid, and get assistance to negotiate revised terms. Be careful not to sign or commit to anything until you have professional advice!
Also, be wary of time sensitive incentives, such as offers to pay legal fees or stamp duty land tax. Whilst these are nice to have, a one-off payment is unlikely to offset the impact of a large recurring annual service charge, so make sure you understand the cost/benefit.
For more information about NHSPS leases, or any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
- Continue to pay what you have historically paid. Paying any more could set a new precedent and that’s something to be avoided as it may harm your negotiations if you decide to enter into a formal lease later. If you’ve been in occupation for a long period of time without a formal lease, then you may have a periodic tenancy that secures your rights. This could also be helpful when negotiating a service charge cap.
- Consider starting a maintenance fund – Begin putting some money aside regularly, so you have built up a contingency pot should things get difficult in the future.
- Negotiate – The final step is to try and negotiate an amount you can afford to pay and a service charge cap in your new lease. The advantage of having a cap will be the certainty it provides, but it does have the drawback that charges are likely to end up at that amount, so think about what you can afford going forward. If a cap cannot be agreed, the services and method of charging should be carefully reviewed – for example, any additional services should only be provided with your consent to the proposed costs.
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Ceasing contributions to the NHS Pension – what are the partnership implications?
There are many reasons why a partner may decide to stop contributing towards the NHS Pension – from 24hr retirement, to approaching the ceiling of the lifetime allowance, or simply deciding to make other pension arrangements.
At DR Solicitors we are receiving an increased number of enquiries from partnerships seeking clarity on this matter, as stopping contributions is becoming more common.
The good news is, it’s a relatively straightforward process. The key is to have an accountant who understands the NHS pension scheme and a Partnership Deed which correctly defines the allocation process.
The main areas that can sometimes lead to confusion are:
The role of NHSE
NHSE pays the contract sum to the practice net of estimated pension contributions. NHSE then pays these withheld contributions across to NHS Pensions. This payment is sometimes referred to as the ’employer contribution’ but this is incorrect. NHSE is simply paying across the partner contributions on behalf of the individual partners who are members of the scheme.
How pension contributions are treated in the accounts
If NHSE didn’t make these payments, the contract sum would be paid gross to the practice and the individual partners would make the contributions instead. A common mistake is to forget that practice income is not the monies actually received from NHSE, but rather the monies received PLUS the pension contributions withheld. It is this gross amount which should be shown in the accounts and split in profit sharing ratios.
The pension contributions should then be treated as an expense attributable to individual partners. As such, when a partner ceases to make contributions, the expense will disappear and so the net profits they receive will increase.
The only way this process can give rise to problems for a practice is if income is shown as the net amount received, rather than being grossed up with the withheld contributions. This would, however, be an error in the accounts and contrary to accounting policy.
A simple worked example
Imagine a two-partner practice operating with a 50/50 profit share, where Partner A contributes £100 towards the NHS pension and Partner B contributes nothing:
- The practice receives £900 from NHSE (the contract sum minus £100 pension contribution)
- Practice income = £1000
- Partner A net profits = £400
- Partner B net profits = £500
The Partnership Deed
The Partnership Deed simply needs to state that all pension contributions are an individual expense. It may also state that all income should be shown gross, but this is normal accounting policy so is not strictly necessary. There will be other circumstances that the deed needs to cover, such as dealing with over and under accruals on retirement, but that is a topic we will cover in more detail at a later date.
Our recommendations
Allocating pension contributions is an area that any specialist accountant should be familiar with, and only a poorly drafted Partnership Deed would get wrong, but if you’re at all unsure then please feel free to get in touch and we’d be happy to help you.
For more information, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com