A health check for your finances: Accounting for private health businesses

Do you run a private business as an allied healthcare professional?

If you’re an independent physiotherapist, chiropractor, speech and language therapist, or run a similar business in the healthcare space, you’ll need to know how to manage your accounts.

Private allied healthcare businesses face particular challenges whilst operating in the UK: complying with regulatory and professional bodies, working alongside the NHS, and meeting the more typical demands of the business environment. One way to make sure your business is successful and growing is to have accurate and updated financial accounts.

In this article, we’ll discuss everything you need to know about bookkeeping within the allied healthcare industry, including easy software tools to help make your job easier. Discover:

• Basic bookkeeping practices for your business
• Bookkeeping for more regulated health professionals
• How to add VAT to your costs
• Common industry pressures faced by allied healthcare professionals
• Business insurance you should have
• How Countingup can help you run your business effectively

An early step in running a business is choosing between different types of accounting methods. Each method has pros and cons for your business and end-of-year tax filings, so knowing how it impacts your financial records is essential to stay tax compliant. 

Once you’ve chosen a method, you’ll need to make sure it’s up to date and accurate. Find out how you can do both below. 

As you’re operating your business, you’ll need to decide on an accounting method to use. This is how you’ll keep track of your income and expenses and make your records consistent month-to-month and year-to-year. Whatever option you choose, you’ll also need to know how it impacts your business’ cash flow and tax calculations.

Cash accounting means you record income and expenses when they’re paid, rather than when they’re initially requested or ordered. This method may be more suitable if your business deals in smaller transaction amounts that can be provided more easily. Cash accounting can be more common in patient-facing businesses like physiotherapists, counsellors, or chiropodists. 

As you’re filing tax returns each year, your calculations should be based on all income and expenditure transfers within the financial year. 

In contrast, traditional accounting uses invoicing where payments are delayed for a period of time and is the required method in businesses with a turnover greater than £150,000. 

This accounting method can help improve your business’ cash flow and is more common with larger transaction sums or business-to-business relationships. Therefore, if your business supports and hosts patient referrals for the NHS,  you could consider traditional accounting.

Your tax filings should use transactions that took place within the financial year (even if some payments are delayed into the new financial year).

Now that you’ve established how you’ll record your income and expenses, you now need to know how to calculate these figures for your business. These calculations will impact how profitable your business is, so it’s important to get it right.

Use the following formula: 

direct materials + direct labour + applied overheads = total job cost 

While your business will likely rely more on labour costs, you may still have some material expenses depending on your business. For example, physiotherapists will have different material expenses than chiropractors.

Once you’ve calculated the price for a patient session, you can work out how much profit you’ll make once it’s paid. Your business will likely provide fixed quotes rather than estimates. Therefore, your accounts shouldn’t have too much fluctuation across time.

However, you may identify more complex patient symptoms that will require additional intervention or a change in diagnosis. Therefore, you’ll need to adjust your income records if you’ve charged a different rate than you initially quoted –– especially if you’re invoicing your local NHS trust for support work.

Expenses for allied health businesses will vary considerably between professions and practices. 

Your income may rely on providing support materials for patients across their rehabilitation or can include necessary medical furniture and equipment for your practice.

As you order these materials, you should receive invoices and receipts. Use these to make records that are as detailed as possible, including additional details such as the transaction date, vendor, and client reference. 

This will help your profitability as you’ll be able to precisely track individual patient revenues. It will make your accounts easier to manage when filing tax as you won’t have to remember up to 12 months of business history.

Recording and tracking business expenses is essential as these are ways your business loses money. Reducing them as much as possible can help increase your profits in the short and long term. While this list isn’t exhaustive, below are some typical expenses your business may have. 

• Patient equipment (individual or batch orders)
• Specialist practice equipment and medical furniture
• Business registration and licensing
• Business insurance
• Utility costs and rent
• Other materials, such as office supplies
• Safety equipment and practice uniforms
• Subcontractors or staff costs (if relevant)
• Bookkeeping software and accounting

The right accounting software will make it easy to manage your expense records.  The Countingup makes it easy to capture receipts and nudges you to do so once you’ve made a payment. 

Once you’ve calculated a treatment plan for a customer, it’s best practice to provide an invoice, especially for someone working within the healthcare space.

This document should provide a breakdown of the costs outlined above, VAT (if applicable), and can include payment instructions. Invoices aren’t just for customers as they are a useful record for you to record income sources. As invoice formats are standardised across many industries, accounting apps like Countingup offer automated invoicing to help you create and send invoices in seconds – and get notifications once you’ve been paid. 

‘Reconciling’ your financial records means ensuring your bank records match the details you’ve recorded in your accounting system. You can use the steps below to check your accounts:

1. Compare your bank records to your expense records
2. If they don’t match, identify where the differences are and update your records
3. Compare transactions to the income in your revenue sheet
4. If you expect certain payments to have been made already, contact your bank

Using a simple app like Countingup can automate your expense categorisation and prompts you to record receipts on the go, so that you can make sure your records are always accurate and up to date.

Even if you have recorded them, unexpected expenses to your business can also affect your accounts as they will have impacted your profit expectations. If you haven’t yet included unexpected expenses in your financial accounts, you should update these records and adjust your profit projections accordingly. Managing cash flow

Managing your business’ cash flow is an essential part of your operations as it allows you to cover expenses when you need to. These can range from day-to-day elements of your business to sudden or large bills. For this reason, companies can become bankrupt as they’re unable to find the cash they need.

If you’re handling routine client work, cash flow shouldn’t be too big of an issue. However, as you’re looking to expand your business or take time off for professional development courses, you’ll need to have some cash available if your operations are limited for a while. 

Carefully managing your cash flow is one of the best ways to ensure the success of your small business. Read more in our article What is cash flow? for more information.

If you run a more specialist health service, the bookkeeping tips outlined above will largely be relevant for your business.

However, some specific elements like expenses and income sources might be different as you may have to operate to tighter industry regulations. Whatever your professional requirements and standards are, make sure to follow the guidance above and consult your professional body for more information.

If your business’ turnover is greater than £85,000, you must register for VAT. To add VAT at the standard rate, increase your prices by 20% by multiplying your costs by 1.2. HMRC applies lower VAT rates for some items; reduced to 5% rate or 0%. You can find out the required VAT rates for different goods and services from the HMRC VAT information page. 

‘VAT exempt’ or 0% rate items and services don’t affect your prices. 5% rate items are calculated similar to the standard rate above: multiplying by 1.05 instead.

VAT is a tax paid by customers, not businesses; therefore, when you register for VAT, you’re required to charge the right amount, provide this revenue to HMRC and keep a record of it as you trade. Failing to charge the correct VAT rate on your products/services as otherwise, you may be liable to HMRC for the remaining portion. Keeping VAT records and managing your VAT returns is easy with the Countingup app.

You can reclaim VAT by submitting a VAT return to HMRC, so your prices can still be competitive. The UK Government has specific guidance available for health professionals for which services and healthcare items are exempt from VAT charges.

Businesses can voluntarily register for VAT below the £85,000 threshold. For example, if your revenue is expected to increase across the financial year to over £85, 000, your business will already be tax compliant. As you can reclaim the VAT you charge, your business won’t face any additional costs. However, you cannot charge VAT if you’re not registered, and you won’t be eligible to reclaim any portion either.

The allied healthcare space is an evolving and demanding industry. As life expectancies increase and healthcare needs become more complex, allied healthcare professionals are in the prime position to support and service these emerging demands. However, here are some specific challenges that limit the market and viability of businesses long term. 

From a business perspective, the NHS presents both opportunities and challenges to the allied healthcare industry. NHS referrals and private follow-up care can provide your business with income and a client base to enjoy. However, the NHS can limit your business’ market size depending on how regulated your profession is.

Regardless of how large your business is from these referrals and client relationships, you’ll need to manage your accounts well. This is partly so you can pay your correct rate of tax. However, you can also use your financial records to gain insight into and grow your business.

With new software solutions available, allied healthcare professionals are increasingly expected to maintain patient care records digitally. 

While this paper-free target is some ways off, similar scenarios are happening for business accounting through HMRC’s Making Tax Digital (MTD) scheme. This means your business will have to manage nearly its accounting and financial information using MTD-compliant accounting software or apps.

Therefore, soon enough, you could be running large elements of your business using new software packages, ranging from patient notes to payments. Make sure you’re ready for the next step in business and start using MTD accounting solution designed for small businesses.

Most businesses have similar insurance policies. However, healthcare professionals are eligible for specific coverage that protects their patients and practices. Read the list below to find out what you should consider for your business:

• Medical malpractice insurance (to protect you from medical accidents to your patients)
• Public liability insurance (to protect your patients from non-medical accidents)
• Employers’ Liability insurance (if you have staff)
• Contents insurance (to cover your equipment and practice contents)
• Business buildings insurance (if you own your premises)

To bring five-star Trustpilot-rated cover to small businesses like yours, we’ve partnered with insurance provider, Superscript. Click here to get a quote in minutes.

Running a business takes a lot of effort. Countingup offers unique and helpful ways to save you time and stress on your accounting admin.

Countingup is the business current account and accounting software in one app. It automates the time consuming aspects of bookkeeping – saving thousands of UK business owners time and stress. The app offers handy receipt capture reminders to help you keep on top of your records, and automatic expense categorisation to save you from doing it.

Countingup also has automated invoicing features, so you can charge patients easily. You’ll receive notifications once they are paid, and because all your accounting information is available under one system, you can view real-time profit and loss reports to quickly and easily understand how your business is doing at any moment.

Find out more here and sign up for free today.