Draw against profit, not against cash
The bank balance of a GP practice is a poor guide to what is distributable, because three large obligations have not yet been demanded: income tax and Class 4 National Insurance on the profit share, superannuation contributions, and any annual allowance charge in prospect.
The difficulty in general practice is rarely the level of the allowance and almost always the timing. Pension growth is driven by pensionable pay that is not finally certified until long after the year has closed, so a charge can arrive against a year everyone had treated as settled. That is precisely why the reserve has to be built as profit arises rather than calculated afterwards.
How we set it up
- A monthly drawing level set from reserved profit, not from cash
- Tax and superannuation reserved as profit arises
- A balancing distribution once the accounts are agreed
- A defensible record of what each partner has taken, which makes joining and leaving straightforward
Common questions
How much can a partner safely draw?
Less than the bank balance suggests, almost always. Drawings have to be set against three things that have not yet been demanded: income tax and Class 4 National Insurance on profits, superannuation contributions, and any annual allowance charge in prospect. Practices that draw against cash rather than against reserved profit are the ones where January is a crisis, and it is entirely avoidable arithmetic. As a rough starting point, a partner should expect a material share of profit to be unavailable — the exact figure depends on the profit level and each partner's other income, which is why it is modelled rather than guessed.
What causes an annual allowance charge in general practice?
The annual allowance is £60,000, with a threshold income of £200,000 before tapering comes into it. The difficulty for a GP is rarely the level and almost always the timing: pension growth is driven by pensionable pay that is not finally certified until long after the year has closed, so a charge can surface against a year everyone had treated as settled. That is why the reserve matters more here than in an ordinary partnership. A partner who has drawn fully against a good year can face a charge on pension growth from that same year long after the money has gone, and there is no mechanism that warns them in advance.
What is Scheme Pays and should we use it?
It lets the scheme pay an annual allowance charge on your behalf in exchange for a reduction in benefits. There is a mandatory route and a voluntary route, and they have different deadlines and different conditions — knowing which one applies to you is the practical question, because missing the mandatory election window pushes you into paying the charge personally. It is a decision to make with your accountant and, where the sums are significant, an independent financial adviser. We will tell you when the sums are large enough that you need one, rather than advising on benefits we are not regulated to advise on.
How should drawings work through the year?
Monthly, at a level set from a reserved profit figure rather than from cash, with a balancing distribution once the accounts are done. That way partners have a predictable income and the practice is not funding tax out of next month's contract payment. It also makes a partner leaving or joining far less disruptive, because there is a defensible basis for what each partner has already taken. It also removes the most common source of friction in a partnership, which is not how much the practice earned but the suspicion that drawings have drifted out of line with profit shares.