Keeping on top of records

Keeping good patient records should go without saying. But a lot of doctors could do much more to improve their business records and hence their profits, warns Ian Tongue

When carrying out a business of any sort, robust financial records must be kept. These can be wide-ranging, but they must all have the common theme of being complete and accurate.

It is important that you know what needs to done from the start, as it can often be difficult to implement changes later on.

Her Majesty’s Revenue and Customs (HMRC) has powers to fine businesses that they do not feel are keeping adequate records.

Key requirements

Completeness and accuracy are the key words in any accounting system and these provide a robust system of record-keeping. Also, keeping records up to date is a vital part of running any business.

The accounting system should be geared towards both your current and future plans and you should be looking at least a year or two ahead.

In the early years, simple spread sheets usually suffice, but for those with larger practices, bespoke practice management or accounting software will be more appropriate.

For those doctors who are VAT-registered, the requirements are more stringent, primarily because you are acting as a collector of tax for the Government, as the system is more complex.

Income

Records of income can vary significantly. It is important that your system records all work performed and allows you to trace through to the date of payment from the patient or insurance company.

It is always surprising to hear from independent practitioners that they had to write off monies due when their systems went wrong. They were effectively working for free in those cases.

The key data required is:

• Date work was performed;
• Patient details;
• Invoice number (where applicable);
• Amount charged;
• VAT (where applicable);
• Date received;
• Date chased, if not received;
• Date considered irrecoverable, if debt is bad.

A spreadsheet can be set up for the above, but most software packages should have the above functionality built in.

If you are involved in more than one type of income source, it is important to have extra columns to separate the income.

For example, clinical work needs to recorded separately from medico-legal work, as the latter is potentially subject to VAT (see below).

VAT

For the vast majority of clinical work, VAT should not be an issue, as this service is regarded as ‘exempt’ from VAT.

However, medico-legal work or procedures carried out purely for cosmetic or aesthetic purposes are ‘standard-rated’.

You are under an obligation to keep records that allow you to determine whether you are carrying out sufficient ‘standard-rated’ work to require compulsory VAT registration.

At the time of writing, the VAT registration limit is £81,000 a year on a 12-month rolling basis and NOT aligned to your accounting year-end.

Credit control

Every business should have some form of credit control. This ensures that debts are paid on a timely basis and is vital for any consultant carrying out a private practice.

Normally, it will be a secretary or perhaps spouse employed in the business that will perform this function.

In particular, issues around insured patients arise and these need to be followed up as soon as possible.

The key areas seem to be coding of procedures and charging the correct tariff. In relation to the latter, it is important that you make the patient aware of any excess from the outset if you are charging more than the insurance firm’s tariff rates.

Expenses

It is just as important that expenses are recorded as income – although, clearly, HMRC is not as concerned if you miss some off, as it gets more tax!

That is the key message: record your expenses properly or pay more tax.

The key data to record within your system is:

• Invoice date;
• Description;
• Amount;
• VAT (if applicable);
• Date paid.

With all of the above data, you should be in a position where

all costs are recorded and tax relief obtained at the earliest opportunity.

Separate bank account

For a self-employed consultant, it can be tempting to use your own bank account for running your private practice, but this is not recommended.

Maintain a separate bank account at all times to ensure a segregation of your personal expenditure from business expenses.

You do not need to ask for a business account, as this will come with fees and extra services that you don’t usually require. But, on occasion, the bank will insist on a business account being used if the practice is large.

Anyone trading as a company must have a separate business bank account in the name of the company.

Hard copies

It is generally best practice to keep all invoices, remittances and bank statements in hard copy format to support the entries within your electronic system. The general rule is to keep records for six years, but many keep them longer if they have the space.

Balance sheet

Preparing a balance sheet is an extremely effective tool to ensure that your accounting records are complete and accurate.

This statement is prepared by your accountant, but they require you to keep the records described previously.

Preparing a balance sheet goes much further than simply looking at the income and expenses as per the invoices and remittances. It extends to the accounting procedures to reconcile the movements, in and out, on the business bank account and reconcile fees to amounts received and owed at the end of the financial year end.

Preparing a balance sheet often highlights additional income, and not declaring this can lead to penalties.

A few years ago, there was an amnesty for doctors to declare additional income, as many had missed off Bupa awards and other sundry fees.

As an accountancy firm, our standard practice is to prepare a balance sheet for all clients where we can which give them additional comfort over the work performed, which, in turn, should reduce the risk of an inquiry with HMRC.

It should be noted that limited companies are required to prepare a balance sheet each year.

It is vital that all businesses maintain robust accounting records and your private practice is no exception.

Take advice from your accountant and ask for feedback on your systems, which they should be happy to give.

As your practice grows, keep things under review and ensure the systems grow with your business and consider the use of practice management software when appropriate.

Ian Tongue (right) is a partner with accountants Sandison Easson and Co

• See ‘Plan to minimise tax‘