Pharmacy

MACO pharmacy advert Mar 2019pillsWe have a dedicated team of accounting, tax and finance professionals that specialise in advising pharmacists on all aspects of running and managing the pharmacy business and finances.

We also advise on on buying/selling pharmacies (see our tips below), succession planning for retiring pharmacists and our colleagues in Martin Aitken Financial Services have expertise in providing NHS pensions advice and advising on all aspects of inheritance tax planning and wealth management >find out more

Mark Tenby, Director, Martin Aitken & Co provides Scottish Pharmacist with a regular column on all things accounting, finance and tax for pharmacists. The articles have been reproduced below.

Click on the links below to read more.

If you have any queries on any of the issues raised in the articles, or if you are looking to discuss your financial and tax situation with a specialist pharmacy accountant, get in touch with Mark by email: This email address is being protected from spambots. You need JavaScript enabled to view it. 

Cloud meeting

Out with the old tax year and in with the new. Tax planning tips and 5 things you need to know about the new tax year >read more

 

MACO business

 

Budget 2018: the key impacts on pharmacists >read more

Cloud technology

 

MTD for VAT: are you ready for 1 April 2019 >read more

MACO buying selling

 

Selling the pharmacy or nearing retirement? Get your tax ducks in a row. Read our pointers on what to do to avoid an unexpected tax bill following the sale >read more

OutlookAre you ready to own a pharmacy? If you are considering a purchase read Mark's tips so that you know exactly what you need to do and the likely hurdles you'll need to get over to complete a purchase >read more

 

arrow people Growing the pharmacy profits: align your strategy with the opportunities for growth. Questions and considerations for your business and financial planning process >read more

 

MACO investManaging the pharmacy finances. If you have recently opened a new pharmacy, taken over a pharmacy, or if you have been running one for a while and would like to get a better handle on the finances, this article will provide you with practical suggestions on improving the day to day management >read more

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Scottish Pharmacist

Out with the old tax year and in with the newCloud meeting

 
Before you get out your party hats and streamers to celebrate the end of this tax year on April 5 and to herald the arrival of the next on April 6 (or maybe this is just in my house!), there are a few things worth considering in order to minimise your corporate and personal tax bills and to avoid making unnecessary overpayments.
 
Tax year end planning: 5 tips
 
(1) Bringing expenditure into this financial year, or deferring to the next, can have a significant impact on your tax position and financial results. If you are considering a significant new purchase, it is worth a discussion with your accountant to see when is best financially and from a tax perspective to make the entry in the ledgers.
 
(2) Maximise and use all allowances, credits and exemptions you are entitled to. For instance, capital allowances can represent a valuable tax deduction for your pharmacy. They can be claimed on a wide variety of capital assets including plant, machinery, equipment, fixtures & fittings and vehicles >Tax saving ideas: Capital Allowances
 
(3) If you are thinking about selling a business asset and a gain is likely to accrue – before you do, make sure you tax advantage the sale. For instance, tax due on an asset sale can be delayed by reinvesting the proceeds in another qualifying asset.
 
(4) Any dividends you currently take in excess of the £2,000 dividend allowance will attract an income tax liability. Any dividends above that threshold but still in the basic rate tax band will be charged at 7.5%. Those in the higher rate band will be charged at 32.5% and those in the additional rate band at 38.1%. If you haven’t considered changing the way in which you balance your income and dividend payments in this tax year, make it a priority for the next.
 
(5) From 1 April 2019, all UK pharmacy businesses that are VAT registered with turnover above the £85,000 VAT threshold will be required to maintain a digital record of their VAT transactions and submit VAT returns to HMRC using MTD compatible software.
If you haven’t already done so, you should contact your existing accounting software supplier to find out if they will be MTD approved before the deadline. If you are using basic spreadsheets at the moment, you should get in touch with your accountant to discuss a MTD-compliant alternative.
 
We have a few getting ready for MTD webinar videos on our website that also include demos of Xero, Sage 50 Cloud and Clearbooks Micro. If you are looking for a digital solution then they are worth a watch. >Preparing for MTD webinars
 
New tax year: 5 things you need to knowTPL fc 2018 19
 
(1) The personal allowance will increase to £12,500, however the 3% increase to the higher rate threshold announced by the Chancellor in the Budget statement will not be implemented in Scotland. The higher rate threshold (41%) in Scotland will be £43,430 and in the rest of the UK it will be £50,000.
 
(2) The tax-free amount for inheritance tax (IHT) will remain at £325,000 but the residents’ nil-rate band will rise to £150,000. For a married couple, this will give a tax-free band of up to £950,000. The £1m IHT free allowance heralded by George Osborne in his 2015 Budget will arrive in the 2020-21 tax year.
 
(3) The pensions’ Lifetime allowance will be increased by £25,000 to £1.055 million, however in reality this will have very little impact. What we are seeing though is a number of people actively considering more diversified retirement portfolios as they look to mitigate the effects of the recent reduction in the Annual allowance such as investments in Venture Capital Trusts (VCT) – an indirect investment in a small company which enables the taxpayer investor to benefit from 30% income tax relief on investments of up to £200,000, as well Enterprise Investment Schemes (EIS) and Seed EIS schemes which can offer up to 30% and 50% income tax relief respectively. Conditions do apply with VCT and EIS investments but they are worth a thought.
 
(4) Auto-enrolment contributions will increase to 3% employer and 5% for employees. Be sure to factor this in to your pharmacy expenditure projections for the year ahead.
 
(5) If you are thinking about buying a pharmacy, take note that you are likely to pay more tax. The upper rate of non-residential LBTT in Scotland is increasing from 4.5% to 5% and the threshold is being reduced from £350,000 to £250,000.
 
And finally… Brexitno deal brexit icon
 
Whether there is a “no deal”, a brief delay in the UK’s departure and a “deal” or a longer period of transition, we are advising all of our SME business clients to research all scenarios and to plan for the worst and hope for the best.
 
To aid this process, we have produced a Brexit planning checklist which is available to download from our website: www.maco.co.uk. I have also been assisting clients with ‘what if’ scenario planning, and the associated financial projections that reveal the reds and the blacks that may unexpectedly appear in the sales, stock and purchase ledgers as we have worked through some of the potential impacts. >UK "No Deal" Brexit Planning Checklist
 
It’s a worthwhile exercise which I would encourage you to consider. Send me an email if you would appreciate a discussion about this, or if you are looking to get on the front foot with your taxes, I would be delighted to hear from you.
 
Article first published in Scottish Pharmacist March 2019
 

 

Budget 2018: the key impacts on pharmacistsMACO business

The 2018 Budget delivered opportunities for pharmacists and health sector businesses which are intended to support and encourage them to invest. However, Mr Hammond’s generosity was not all it appeared as the personal allowance and higher rate threshold will both be frozen in 2020/21 and he also kept many tax thresholds and allowances unchanged.

The annual investment allowance (AIA) will increase from £200,000 to £1,000,000 for qualifying investment. The increased allowance only applies to investment between 1 January 2019 and 31 December 2020.

Quite simply, capital allowances can reduce your annual tax bill. They can be claimed for some types of capital expenditure but, generally speaking, anything that is used for a business purpose that has a useful life of two or more years may qualify. See table inset for examples of qualifying investment. They are treated like any other expense and can be deducted from your profits when calculating your taxable profits at the end of the financial year. Alongside this, a new structures and buildings allowance has been introduced which has been set at 2% on construction or conversion costs over 50 years, where all the contracts for physical construction works were entered into from 29 October 2018.

So if you are considering building a new outlet or converting existing premises into a pharmacy, or you plan to upgrade equipment and fixtures and fittings next year, get in touch to discuss what tax-efficient options are available to you.

A £650 increase in the personal allowance to £12,500 will come in next year, one year ahead of schedule. There will also be an increase in the higher rate threshold (and self-employment National Insurance on profits) to £50,000; however, we will have to wait until 12 December to find out if the latter will be implemented in Scotland. The pension lifetime allowance, widely tipped to be cut pre-Budget, was increased to £1.055m from April 2019.

However, the personal allowance and higher rate threshold will both be frozen by the UK Government in 2020/21. A good example of the impact of frozen thresholds is the personal allowance that will continue to be tapered from an income level of £100,000. This threshold has applied since April 2010 and it creates high marginal rates for some pharmacists.

Combined with the increase in the personal allowance, for income between the taper threshold of £100,000 and the starting point for additional rate tax of £150,000: the first £25,000 will be taxed at up to 60% (61.5% in Scotland); and the next £25,000 will be taxed at 40% (41% in Scotland). If you haven’t had any financial and tax planning advice recently, get in touch with me and I’ll arrange to a time to discuss your remuneration and personal/family financial planning with you.

Article first published in Scottish Pharmacist December 2018

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Making Tax Digital (MTD) April 2019 Deadline: Are you ready?Cloud technology

From 1 April 2019, all UK pharmacy businesses that are VAT registered and above the £85,000 VAT threshold will be required to maintain a digital record of their VAT transactions and submit VAT returns to HMRC using MTD compatible software.

Pharmacies that are VAT registered but fall below the VAT threshold will not have to register for MTD just yet and can continue to submit their VAT returns to HMRC as normal until April 2020. If your pharmacy will be using the MTD system next year, you must use approved accounting software which will enable you to send regular updates to HMRC.

If you haven’t already done so, you should contact your existing accounting software supplier to find out if they will be MTD approved before the deadline. If you are using basic spreadsheets at the moment, you should get in touch with your accountant to discuss a MTD-compliant alternative.

Keeping digital records will not mean pharmacies are required to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required for those not using MTD-compliant software come April next year. Software will not be available from HMRC.

The use of basic spreadsheets to store your records and manually entering and/or tweaking your submissions in HMRC’s website will also not be an option from 1 April 2019.

Moving to MTD-complaint software in advance of the deadline, or appointing an agent who is MTD-ready to submit returns on your behalf, will set your pharmacy in good stead when other taxes, such as Income Tax and Corporation Tax, fall within the MTD programme over the next couple of years.

The best time to make the switch to MTD-compliant software will, in part, be driven by your accounting year. If your accounting year follows the tax year and ends in March 2019 with your quarterly VAT returns following the calendar quarters March, June, September and December, you will need to MTD ready by 1st April 2019 as any transaction which takes place on or after this date will be included in your June 2019 MTD VAT submission.

If your accounting year ends on a different date (e.g. 30th November), you should consider switching software as soon as you can, in this instance from 1st December 2018. If you begin a new accounting year without a MTD solution in place, you may find that you will have to switch accounting systems part-way through an accounting year which can be done but is best avoided.

If you are having trouble understanding your options and what you need to do get MTD-ready, get in touch and we can chat through your options.

Article first published in Scottish Pharmacist October 2018

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Watch our MTD webinars: what is MTD and what you need to do to prepare; MTD for VAT demos - Sage50 Cloud, Xero and Clearbooks Micro >watch now

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Selling the pharmacy or nearing retirement? Get your tax ducks in a row.MACO buying selling

One of the key issues for pharmacy owners planning to retire or sell the business, centres on how best they plan their tax liability, specifically Capital Gains Tax (CGT) and Inheritance Tax (IHT).

With a little planning and foresight the seller or retiree can prevent a rather unexpected demand from the tax man dropping through the letterbox requesting a larger share of the proceeds than was probably necessary.

In our experience it is never too early to consider financial planning and whilst ‘younger’ pharmacists may not place this at the top of the agenda right now, the reality is that planning at an early stage can be structured to help with current tax liabilities as well as those on retirement or sale.  

CGT is payable when you sell an asset, for example, a pharmacy business, and there has been an increase in the value of the asset. Currently, CGT rates on most gains are 10% for basic rate tax payers and 20% for higher rate tax payers.

CGT liabilities can be reduced by utilising the tax allowances to which you are entitled and by careful planning of your CGT position throughout your life.  If you leave it too late to consider your CGT liabilities, especially if you are planning to sell investments made many years ago, it can be quite a shock to realise how large the CGT liability can be.

Everyone has an IHT Nil Rate Band of £325,000 and this will remain frozen until 2020/21. In addition to the main nil-rate band, the Residence Nil Rate (RNRB) came into force in April 2017.

The maximum RNRB allowance this tax year will be £125,000 rising by £25,000 in each of the next two tax years. This will effectively raise the IHT free allowance to £500,000 per person. Where married couples jointly own a family home and wish to leave this to their children, the total IHT exemption will rise to £1m by 2020/21.

Business Property Relief can, with careful planning, potentially remove the full value of a pharmacy business – sole trader, partnership, or shares in private company from being subject to an IHT charge, either via lifetime gifts or on death.

These areas can appear to be overly complex, but with a bit of careful planning it is possible to mitigate your exposure to unwanted CGT/IHT liabilities. There are more tax saving ideas in our annual Tax Planning for Life guide that can be found here >read more

Thinking of selling and wish to get your tax ducks lined up in advance? Drop me an email and I will talk you through your options – and potential savings. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. 

Article first published in Scottish Pharmacist August 2018

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Are you ready to own a pharmacy?Outlook

With the pharmacy sales market remaining buoyant and the banks maintaining a healthy appetite to lend to pharmacists, 2018 is proving to be a good year so far for transactions.

A recent report by Christie & Co noted that sales activity in the first quarter of 2018 was up by 31% and enquiries from those looking to buy were up by 18% compared to the same period last year.

Here are some questions and pointers if you are considering a purchase:

Why are you buying? Seems like a straightforward question but you will probably be surprised to hear that a good number of people who begin the process do not actually end up buying. You should set yourself clear objectives as this will provide you with the motivation to get over the hurdles that will come your way throughout the process.

Are you financially ready? The initial purchase is a significant investment alongside the first year running costs and any refits or upgrades to fixtures and fittings you wish to make. Determine your budget early and what cash you will need for working capital and renovations. Knowledge of your own resources from your Accounts and what might be available from a lender will be key to purchase negotiations and paying the right price for the pharmacy. If a property is included in the assets being acquired, then get a surveyor involved too.

What type of pharmacy are looking to buy? Think about the size and location of the pharmacy. Are you looking to manage the pharmacy yourself or employ people to manage and run it for you? What level of return do you require? It’s best to decide on these factors early as it will ensure that you don’t waste time on looking at potential purchases that don’t meet your requirements. You will also need to examine the thoroughness of the vendor’s valuation model and the credentials of the preparer. planning 2

Get up to speed on the potential hurdles you will face. A lot of this depends on whether the pharmacy-owning company and its share capital is for sale or whether an asset sale is taking place. The latter may include the premises, NHS contract, goodwill and stock. There are pros and cons to both routes, not least in terms of tax and price, and it is vital that these are clarified as early as possible.

Warranties and indemnities are a typical feature of Sale & Purchase Agreements (SPAs) for pharmacies. A warranty may be included stating that there have been no claims against the business. An indemnity clause often included in SPAs might state that the seller must bear any costs incurred by unresolved litigation against the pharmacy business after completion. Your solicitor will seek clarity on both so there are no nasty surprises later on.

The SPA should address a range of issues, including;

  • · It will ensure that information about the business, including its Accounts, is reliable. It is essential to view up-to-date Management Accounts for the pharmacy you wish to buy as the financial health of a pharmacy may have deteriorated since the Annual Statutory Accounts were produced.
  • · It will also ensure that you can rely on prescription volume and other services by obtaining NHS statements for the last three years.
  • · Damaged/old stock should be excluded from the valuation which should be carried out by an external valuer.
  • · Links with local doctors’ surgeries and residential/nursing homes.
  • · Third-party pharmacy and GP relocations.
  • · On purchasing a company, you inherit its liabilities and therefore care needs to be taken to negotiate the necessary warranties and indemnities from the seller to protect your interests.
  • · Restrict the seller from directly competing with you after completion.
  • · Property issues such as transfer of ownership, lease provisions, planning consents and repairs.
  • · Equipment specifications, age, insurance and any software contracts.
  • · All employee information (pay rates, benefits, pensions, holidays, etc.) must be disclosed so that the buyer knows what the responsibilities are going forward under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).
  • · Locum and other supplier relationships

Raising finance to fund the purchase

If you are involving a lender in the pharmacy acquisition, make sure that you deal with representatives that specialise in Healthcare. All the main banks have specialist Healthcare teams and your solicitor should advise you on the loan agreement obligations such as security over assets. You should also ask your accountant to prepare financial projections for three years both for the bank’s requirements and to see how the new pharmacy will fit into your existing financial modelling.

Seek professional advice early

This article does not constitute legal advice and does not obviate the need to obtain specific legal advice or other relevant professional advice relating to your specific circumstances. However, with careful planning and sound guidance, you can reduce the stress associated with the pharmacy purchase and concentrate on making your business a success.

If you are ready to buy or sell, get in touch and I’ll talk you through the process so that you are fully aware of what’s involved, the time it could take and the costs.

This article was first published in Scottish Pharmacist June 2018

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MACO pharmacy advert buy sell Mar 19

Growing the pharmacy profits: align your strategy with the opportunities for growtharrow people

During 2013-18, overall dispensing chemists’ revenue in the UK is anticipated to increase at a compound annual rate of 1.5% according to the report published by IBIS World at the end of 2017.

The forecasted growth is mainly being attributed to an ageing population and the increasing prevalence of diseases such as obesity and associated health ailments. The rising popularity of electronic prescription services and the development of direct contracts with drug manufacturers have also underpinned growth.  However, despite this, pharmacists are coming under pricing pressure due to regulatory changes, decreasing NHS budgets, the loss of patent protection and increasing competition.

Economic and political uncertainty, which is impacting all industries in the UK, is likely to continue to constrain growth as consumers opt for low-margin generic prescription drugs over high-margin branded products. Regulation and continued cuts to NHS funding are expected to limit growth. Further, low-cost generic drugs will continue to flood the market as pharmaceutical patents expire, aggregating downward pricing pressure.

With competition from supermarkets and with online-only retailers such as Amazon poised to enter the market, the importance of having a clear business strategy and marketing plan for the pharmacy is vital.

Identifying the key opportunities for growth should be your starting point: an ageing population; increasing health consciousness in the general population; rising NHS prescription volumes; demand for services such as vaccinations and new products such as biological and biosimilar medicine are also forecast to increase.

Here are some questions to consider as part of your planning process. The answers to which will help you to develop your strategy.

  • · How close is your establishment to the nearest GP surgery? How does this affect demand?
  • · How do you ensure your pharmacy is easily accessible? How late are your opening hours?
  • · How have supermarkets in your area affected your business recently? How will you differentiate your services from those offered by supermarkets/Amazon?
  • · How will you alter your product portfolio to cater for an ageing population and health consciousness in the wider public?
  • · Are you accurately managing stock?
  • · What software and business applications are you using to run and manage finances?
  • · How do you hire and retain qualified staff? Are you providing staff training to deal with elderly customers, millennials, time-pressed working parents?

If you would like to discuss further, get in touch and I’ll help you to progress your business and financial strategy for the year ahead.

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Managing the pharmacy financesMACO invest

If you have recently opened a new pharmacy, taken over a pharmacy, or have been running one for a while and would like to get a better handle on the finances, this month’s insights are for you.

Getting to grips with the books
In today’s world with everyday life becoming more digital and interactive, managing your accounts and tax is no different. The online cloud accounting environment is growing exponentially with a range of programs, add-on’s and apps available to assist you in streamlining your pharmacy business and its operations.

The flexibility of use, ease of information available and all-round slicker delivery puts cloud software miles ahead of the more traditional desktop versions and endless spreadsheets.

Cloud accounting systems can be accessed anywhere (the pharmacy, at home, on a train or even on the beach if you can’t switch off…) and simple tasks like creating and sending invoices, matching payments and reconciling your bank can be done by a few clicks on your smartphone or tablet. You should speak to you accountant about the best package and apps for your pharmacy.

Ensuring that you have the bookkeeping in hand is often overlooked when setting up and growing the pharmacy (especially if you have little financial knowledge) but this is one of the key controls that should be implemented from the outset – either completed internally or by engaging a bookkeeper.

Compliance
Running a pharmacy brings with it a certain amount of compliance in terms of the accounts and tax. Company accounts require to be submitted to Companies House within 9 months of each financial year end. HMRC also require payment of Corporation Tax in the same 9 month period. Your accountant will generally prepare and submit these on your behalf.compliance

Your accountant should also meet with you to develop your tax planning strategy taking into account your business, personal and family circumstances – it’s never too early to consider inheritance tax (IHT) and creating a tax plan for your life (and beyond). Decisions made during your working life can leave your loved ones with a larger IHT bill than may have been necessary.

Further HMRC compliance is also required in relation to PAYE/NI and VAT on a regular basis. The government’s directive that all companies offer workplace pensions brings an additional compliance burden upon pharmacy owners both from a financial and admin perspective.

Managing cash and controlling costs
Cash flow will be the biggest challenge when opening a new pharmacy. Unless you are in the fortunate position of having a significant amount of capital to invest, managing the cash position of the pharmacy could be the main task as the pharmacy grows.

Some suppliers may not offer you favourable credit terms in the early stages until you build up a payment history with them. So, it is important that cash movements are forecasted as much as possible to ensure that the pharmacy is operating within its means.

Review costs on a regular basis to ensure that you are not overspending and look for areas where you can actively reduce costs – all this will go towards effective cash management.

Ideally, you should be thinking at least 6 months ahead in terms of operational activity and planning to ensure that all cash commitments can be met in line with expected sales etc. It is also worth considering a ‘safe’ balance in your pharmacy i.e. what is the level of cash to be retained at any one time. This safe balance should be enough to cover short term commitments like payroll should activity not go as planned.

Measuring performanceabacus
It’s important for pharmacists to understand the numbers side of the business so that they can gauge whether or not they are making good returns. As with all retail businesses, pharmacy owners need to recognise and be alert to trends and learn when to make changes to their operations and strategies.

NHS income should be monitored monthly and will highlight whether the pharmacy’s volume is expanding or contracting. There will be certain trends in, for example, the winter months. It is also useful to look at the sales to payroll ratio and your gross profit %. The latter measure reflects the % of every £1 of sales that is available to cover your overheads, interest and depreciation.

Return on assets / capital employed – are all of your assets supporting sales? Your premises, IT equipment and in-store furniture should all be supporting sales. This measure calculates what return you are generating from the assets and capital you have invested in the business. You should set a target each year and measure progress against it.

And finally, taking the regular temperature of your pharmacy’s financial health is a must, especially if you are looking to raise external funding. Lenders will look at a range of financial criteria to determine whether or not you have a stable business and to assess your ability to repay. The Quick Ratio is used to determine how many times the pharmacy can immediately cover its liabilities and is an indicator of the pharmacy’s financial stability. The measure is calculated by dividing your total current assets by total current liabilities.

Your accountant should be reviewing these and a few additional key measures with you on a regular basis. If you choose to go with one of the cloud accounting packages, a great deal of the above is automatically calculated and graphically presented thereby enabling you to keep an eye on the pharmacy’s key numbers, trends and, ultimately, your business success.

This article was first published in Scottish Pharmacist October 2017.

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