Guidance

HS231 Doctors' expenses (2020)

Updated 6 April 2024

This helpsheet gives advice about the calculation of business profits that’s of particular relevance to doctors and medical practitioners.

For a partnership it explains how to return details of:

• expenditure incurred by a partner on behalf of the partnership (in boxes 3.51 to 3.63 of the Partnership Tax Return)
• capital allowances claimed by the partnership on a vehicle (or other asset) owned by a partner (in boxes 3.13A to 3.21 of the Partnership Tax Return)
• how you reflect such items in the allocation of partnership profit between the partners (where appropriate)

You can find more general guidance on the completion of the Standard Accounts Information section of the tax return in Helpsheet 229 Information from your accounts or you can contact the Self Assessment Orderline for a copy.

Calculation of partnership profits

The rules for calculating the taxable profit made by any business reflect the sources of income making up that business. And where, for example, a medical practice carries on in partnership, that practice is a single source for tax purposes, regardless of the number of partners entitled to share the profits of the practice.

It follows that the Partnership Tax Return for any business must contain all the information needed to calculate the taxable profits arising from that business in any accounting period. This includes any claims (such as capital allowances) which you must take into account when calculating the taxable profits. It also follows that individual partners are not entitled to make any adjustments to the amount of partnership profit allocated to them for a particular accounting period. For example, the entry that a partner makes in box 8 of the ‘Partnership’ pages of the personal tax return is the share of profit allocated to that partner in the Partnership Statement for the relevant accounting period.

Treatment of expenditure incurred by a partner on behalf of the partnership

The Partnership Tax Return for any business must contain all the information relevant to the calculation of the taxable profits arising from that business, including any expenses incurred by a partner on behalf of the partnership.

It is not possible for individual partners to make supplementary claims, whether for expenses or capital allowances, in their own tax return.

This is because expenditure incurred by a partner only qualifies for relief if it’s made ‘wholly and exclusively’ for the purposes of the partnership business. And the only legal basis for giving relief for any such expenditure is as a deduction in the calculation of the profits of the partnership business.

Similarly, the only legal basis for giving relief for expenditure that qualifies for capital allowances is as a deduction in the calculation of the profits of the partnership business (unless there’s a formal leasing agreement between the partner and the partnership, when the allowances will be due against the leasing income). However, this does not mean that any legitimate expenditure incurred by a partner – that’s, any expense that would be allowable if met from partnership funds – can only be relieved if it’s formally included in the partnership accounts. Nor does it mean that you can only claim capital allowances on vehicles, or other assets, that feature in the partnership accounts.

Providing that any:

• expenditure, or claim to capital allowances, is correctly calculated for tax purposes
• records relevant to those calculations are made and kept as if the expenditure, or assets, were part of the partnership accounts we will accept entries in the relevant sections of the Partnership Tax Return which, though based on the partnership accounts, include adjustments for such expenditure, or allowances – but once you’ve made the adjustments we will treat the expenditure, for all practical purposes, as if it had been included in the partnership’s accounts

Where partners’ personal expenses have been included in arriving at the figure of net taxable profit or loss and those expenses have not been included in the partnership’s accounts, either:

• a corresponding adjustment should be made to the net profit figure in box 3.112 of the Partnership Tax Return
• you should enter the accounts figure in box 3.112 and a reconciliation given in the ‘Additional information’ box on page 3 of the Partnership Tax Return

Corresponding adjustments in the apportionment of taxable profit between the partners

Some partnership agreements, generally those relating to medical practices, provide that any expenditure incurred by a partner on behalf of the partnership, or any capital allowances due on assets owned by a partner, should be taken into account when the net profit of the practice is shared between the partners. Where this is the case we accept that it’s appropriate for a corresponding adjustment to be made in the allocation of net taxable profit between the partners, to make sure that a partner receives the benefit due under the partnership agreement.

This adjustment will be equivalent to the expenditure incurred by the partner on behalf of the partnership, or to the amount of the capital allowances attributable to the vehicle (or other asset) owned by the partner but used in the partnership business. Any such adjustments are similar to ‘fixed profit adjustments’ for ‘salary’ or ‘interest on capital’ and should be identified as such in the Partnership Statement for the relevant accounting period.

Example

Doctors John, Hook and Feelgood carry on a health centre practice in partnership together. Their partnership agreement needs profits to be shared 50:30:20 but each partner is entitled to an adjustment for any expenditure incurred on behalf of the partnership. No other ‘fixed adjustments’ are due. The partnership accounts for the 12 months to 31 December 2019 include entries for:

Cost and expenses	Amount
Employee costs	£24,000
Premises costs	£12,000
Motor expenses	£7,500

The capital allowances due on the practice vehicles are £3,750. The 3 doctors bear the full running costs of their own private cars, although they use vehicles in the practice. For the 12 months to 31 December 2019 the running costs attributable to the practice were:

• Dr John: £4,000
• Dr Hook: £2,400
• Dr Feelgood: £1,900

Capital allowances are due (based on separate pools and adjusted for private usage) as follows:

• Dr John: £1,750
• Dr Hook: £1,420
• Dr Feelgood: £460 (balancing allowance on car disposed of) £3,000 (new car)

In addition, Dr John runs a small satellite surgery at home which is part of the partnership practice. Although the practice bears some of the costs directly, Dr John incurs some costs himself. These are:

• Proportion of home running costs: £1,500
• Wife’s wages and pension payments: £8,000

Entries in the 2018/19 to 2019/20 Partnership Tax Return

When completing the ‘Trading’ pages of the Partnership Tax Return for 2019 to 2020 the following combined entries are needed:

Costs and expenses	Entries
Employee costs	£24,000 + £8,000	= £32,000 in box 3.51
Premises costs	£12,000 + £1,500	= £13,500 in box 3.52
Motor expenses	£7,500 + £4,000 +
	£2,400 + £1,900	= £15,800 in box 3.55
Capital allowances on motor cars	£3,750 + £1,750 +
	£1,420 + £460 +
	£3,000	= £10,380 in box 3.70

The net taxable profit (box 3.73) returned by the partnership for the 12 months to 31 December 2019 was £120,000. This is allocated between the partners as follows:

Step 1: adjust for expenditure incurred by individual partners

The net taxable profit is £120,000.
Add back the running costs of cars which is £8,300.
Add back the capital allowances which are £6,630.
Add back the surgery costs which are £9,500.

This means that the profit that will be shared before individual adjustments is £144,430.

Step 2: allocate profit between the partners

	Totals	Dr John	Dr Hook	Dr Feelgood
		(50%)	(30%)	(20%)
Profit before individual adjustments	£144,430	£72,215	£43,329	£28,886
Motor costs	(£8,300)	(£4,000)	(£2,400)	(£1,900)
Capital Allowances	(£6,630)	(£1,750)	(£1,420)	(£3,460)
Surgery costs	(£9,500)	(£9,500)	0	0
Net share of taxable profits	£120,000	£56,965	£39,509	£23,526

When completing the Partnership Statement for 2019 to 2020 the following entries are needed:

• £120,000 in box 11 (the total profit from this source)
• £56,965 in the corresponding profit share box for Dr John
• £39,509 in the corresponding profit share box for Dr Hook
• £23,526 in the corresponding profit share box for Dr Feelgood

Expenses met by NHS England

The Department of Health publishes the Statement of Financial Entitlements Directions which set the payments to be made by NHS England to a contractor under a general medical services contract. Where the Directions specify the way in which a payment met, directly or indirectly, by NHS England is treated in the accounts of the practice, the figures you enter in your tax return should follow these guidelines.

Where a revenue expense (such as medical supplies, premises running costs, staff costs, or motor running costs) is met directly, or indirectly, by NHS England then the:

• expense should be reported as the gross cost
• amount met directly, or reimbursed to the practice at a later date, should be reported as income

You should not set off the amounts one against the other so that only the net cost appears in the accounts.

By contrast, where the practice receives a grant for capital expenditure (for example, computer equipment), only the net cost of the capital asset should be reported in the practice accounts. Similarly, you should calculate any capital allowances due using the net capital cost. If you’re using the cash basis, there are special rules on income and expenses. For further information, see Helpsheet 222 How to calculate your taxable profits.

Contact

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