Ask The Experts - Premises Share

Published:11/02/2011

Question

The partners’ shares in the surgery are not the same as our profit shares as these were not altered when the partners changed their hours. We divide the notional rent in the premises shares ratio and do the same with the interest on a small surgery loan which we have reduced by making a capital repayment from partnership profits. The building’s running costs are also paid out of profits. We have received a grant to build an extension for which we will not get notional rent because of the grant. Premises upkeep costs will be higher. Our accountant says it is not possible to value the old and new parts of the building separately. What would be a fair way of handling this situation for all partners?

Answer

Where profit shares and building ownership shares are equal, then you can get away with having one partnership account and not really having to split benefits and responsibilities between the Premises and the Practice. However, as soon as either the Partners or the Partners’ shares start to differ, then there clearly needs to be a strict division between what is the Premises and what is the Practice and accounts run separately for both elements.

During the normal course of events, the Premises Account would receive the Notional Rent and rates payment from the PCT and then pay out rates, loan interest costs, the cost of building insurance, the cost of structural and external repair and the cost of external decoration (these elements are all included within Notional Rent reimbursement). The Practice should be regarded as “tenants” and as such would be responsible for the general running costs of the Practice to include the payment of all utility charges together with any internal repair and internal decoration (such costs are not included within Notional Rent). Following on from this route, where capital repayments are made to the loan from profits, you need to be able to trace the monies from the Practice to clearly see the division of the monies.