Accounting for GP Surgeries and Medical Practices

GP surgeries and medical practices in the UK have some of the most complex accounting requirements of any small business. Multiple income streams from NHS contracts, partnership structures with profit-sharing arrangements, superannuation obligations and the sheer volume of regulatory compliance make getting the numbers right both critical and challenging.

Practice structures

Most GP surgeries operate as partnerships , though other structures exist.

Partnership agreements

A well-drafted partnership agreement is essential. It should cover:

• Profit-sharing ratios (equal, weighted by seniority, or based on sessions worked)
• Capital contributions (how much each partner invests and what happens on exit)
• Drawings policy (monthly drawings against anticipated profits)
• Property ownership (surgery premises may be owned by partners personally, by the partnership or by a separate property partnership)
• Retirement and exit provisions (notice period, goodwill arrangements, restrictive covenants)
• Incoming partner terms (buy-in arrangements, parity timelines)

NHS contract income

GP practice income comes primarily from NHS contracts. Understanding the components is essential for accurate accounting.

GMS and PMS contracts

Recording income

NHS income arrives through several channels and on different timescales:

• Monthly Global Sum payments from NHS England
• Quarterly QOF aspiration payments (with year-end reconciliation based on achievement)
• Ad hoc enhanced services payments
• Premises cost reimbursements (often quarterly or annually)

Match each payment to the correct income category. At year end, accrue for income earned but not yet received and defer income received in advance.

QOF income and achievement

Quality and Outcomes Framework payments reward practices for meeting clinical targets across several domains. The accounting treatment requires care.

Aspiration and achievement

• NHSE pays 70% of estimated QOF income in monthly aspiration payments throughout the year
• At year end, actual achievement is assessed against indicators
• A reconciliation either tops up the payments (if you exceeded expectations) or claws back overpayments

Account for QOF income based on the points you expect to achieve, adjusted at year end for actual results. If the reconciliation falls after your accounting year end, include an appropriate accrual or provision.

Partner drawings and current accounts

Each partner maintains a current account in the partnership books. This tracks:

• Their share of profits (credited)
• Monthly drawings (debited)
• Tax payments made by the partnership on their behalf (debited)
• Capital introduced or withdrawn
• Superannuation contributions

At year end, the balance on each partner’s current account shows whether they have drawn more or less than their profit share. This balance carries forward and affects future drawings.

Tax reserves

Partners are individually responsible for their own Income Tax and NIC through Self Assessment . Many practices operate a tax reserve account – setting aside a percentage of each partner’s profit share in a separate bank account to cover tax liabilities. This prevents the common problem of partners drawing too much and being unable to pay their tax bills.

Practice expenses

Staff costs

Staff costs are typically the largest expense category for a GP practice.

• Salaried GPs – salary, employer NIC, pension contributions via PAYE
• Practice nurses and healthcare assistants
• Practice manager
• Receptionists and administrative staff
• Locum costs – covering for partner absences, maternity leave, study leave

For salaried GPs and other eligible staff, the practice must operate PAYE , deduct NIC and enrol employees in a qualifying pension scheme.

Premises costs

Clinical and professional costs

• Medical supplies and consumables (vaccines purchased privately, dressings, equipment)
• Drug costs (personally administered drugs not covered by prescription charges)
• Medical defence subscription (MDU, MPS, MDDUS)
• GMC registration (£420 per year)
• Royal College subscriptions and professional body fees
• CPD and training costs (courses, conferences, study materials)
• CQC registration fees

Administrative costs

• IT systems (clinical software like EMIS or SystmOne, hardware, support contracts)
• Telephone and broadband
• Accounting and legal fees
• Printing, stationery and postage

NHS Pension Scheme

The NHS Pension Scheme applies to all GPs doing NHS work. For partners, this is handled through the superannuation system.

How GP superannuation works

• Each GP’s pensionable income is calculated from their NHS earnings
• The GP pays employee contributions (tiered from 5.2% to 13.5% based on earnings)
• The practice pays employer contributions of 23.7%
• Returns are submitted to the NHS BSA (Business Services Authority) annually

The added years trap

GPs who joined the 1995 section of the NHS Pension Scheme may have added years contracts that commit them to additional contributions. These are separate from normal contributions and can be substantial. Review whether maintaining these is still cost-effective, particularly in light of pension tax changes.

Annual Allowance

The annual allowance for pension contributions is £60,000. For GPs with significant NHS pension accrual plus any private pension contributions, breaching this limit triggers an annual allowance charge. The calculation is complex because the NHS pension is a defined benefit scheme, and the annual allowance test uses a notional value of benefit accrual rather than actual contributions.

GPs with total income above £260,000 (including pension accrual) may also face a tapered annual allowance, which reduces the allowance to as low as £10,000.

Property ownership

Many GP partners own their surgery premises, either through the partnership or a separate property arrangement.

Common structures

Notional rent reimbursement from NHSE contributes towards premises costs. The reimbursement is based on the current market rent as assessed by the District Valuer, regardless of whether the practice owns or rents the building. If partners own the premises, this reimbursement is effectively additional income.

Capital gains implications

When a partner retires and sells their share of the surgery building, Capital Gains Tax may apply. Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce the CGT rate to 10% on qualifying gains up to the lifetime limit of £1 million, but the conditions must be carefully met.

Accounting year end

Most GP practices use a 31 March or 5 April year end to align with the NHS financial year and minimise the complexity of overlap profit calculations. Since the basis period reform from April 2024, the tax year alignment is even more important.

Benchmarking your practice

Compare your practice’s financial performance against published benchmarks.

Significant deviations from these ranges warrant investigation. If your staff costs exceed 65% of income, review staffing levels, skill mix and the use of locums.

Common accounting mistakes in medical practices

• Not reconciling NHS income – payments arrive from multiple sources on different schedules; without reconciliation, income is misstated
• Failing to accrue for QOF reconciliation – the gap between aspiration payments and actual achievement distorts year-end accounts
• Incorrect superannuation returns – errors in pensionable pay calculations lead to incorrect pension contributions and potential penalties
• Not separating property income – if partners own the premises, rental income and expenses should be clearly identified
• Drawing too much against profits – without proper forecasting, partners can overdraw and face cash flow problems at tax time
• Ignoring annual allowance calculations – pension tax charges can be substantial and come as a nasty surprise