Budgeting and Cash Flow Management Post Covid
07 April 2022
The COVID pandemic has had a significant impact on GP practices in numerous ways including workload and finance. As businesses emerge from the COVID period there are still lingering pressures on general practice which, coupled with forthcoming changes to the National Living Wage and National Insurance mean that more than ever practices need to have robust financial systems in place to track and forecast profitability and cashflow.
Impact Of Higher Profits From Covid Vaccinations
In the 2021 year end many GP practices experienced an increased level of profits arising from significantly increased workloads post lockdown together with running extensive COVID vaccination clinics. This led to substantial increases in tax, national insurance, and superannuation. Whilst the increased liabilities for that year could be managed from the enhanced profit levels, for cashflow purposes this has an impact on the level of tax payments on account for the 2021/22 tax year.
For a lot of GPs whilst profits may have increased in 2021, the actual drawings taken by partners did not increase as after paying these increased liabilities, any surpluses were left to contribute towards a further uncertain period coming up including heightened employment costs, the protection of certain income streams stopping and continued staff absences.
How the tax payment on account system operates is that in January 2022 GPs would have paid a 50% sum on account for the 2021/22 tax year on the basis that their profits would be the same level in 2022 as they were in 2021. There is the option to reduce payments on account where you believe profits will be lower but for many practices not enough information was available at that point to make an accurate reduction and GPs faced interest charges if they reduced the payments too far.
It is therefore imperative to gain an accurate picture of the 2022 profits ahead of the second 50% payment on account becoming due at the end of July 2022 to support the cashflow of the practice.
Staff Absence and Increased Costs
Staff sickness absence combined with an increased patient demand post lockdown periods continues to be a real challenge. Whilst COVID restrictions have eased under the Government’s “Living with COVID-19 plan”, NHS England requires NHS staff testing positive to have two negative lateral flow test results taken 24 hours apart before returning to work. This means that there continues to be stretch on practice teams as well as higher cover costs.
In addition to these on-going challenges GP practices will also suffer increased wages costs from 1 April 2022 with the National Living Wage rising to £9.50 as well as a 1.25% increase in employer National Insurance.
Real Time Financial Information
With this perfect storm of pressures impacting general practice it is more important than ever to have real time robust financial information on practice profitability and cashflow. Digital accounting tools can make financial recording quicker and easier for practices and allow their accountants access to the information on a real time basis to support practices day to day. This can enable earlier identification and mitigation of cashflow issues.
If you would like assistance in setting up or getting the best out of digital accounting software or preparing budgets and cashflow forecasts please get in touch with our team.