When two GP practices merge, the partners' first question is usually a simple one: are we one practice now, and what does that do to our accounts and our tax? The answer runs through several strands at once. This guide works through the mechanics: what happens to the two partnerships and their capital accounts, the GMS or PMS contracts and patient lists, the premises, and the pivotal tax question of whether the merger is treated as a cessation of the old businesses and the commencement of a new one, or as a continuation of an existing business. That single distinction shapes the partners' final or continuing tax position, so we give it the space it deserves.

This page is about two whole practices combining. If you want a single partner exiting a continuing practice (which can happen around a merger), see retiring or leaving a GP partnership. If you want the difference between sharing costs and sharing profit as ongoing structures, see expense sharing versus a full GP partnership. For how a single set of partnership accounts is read, see reading GP partnership accounts.

What a GP practice merger actually involves

A merger means two (or more) existing GP partnerships combining into one practice, which usually involves bringing together the partnerships, the patient lists, the premises and the staff. The medical-specific point to settle up front is that there is no purchase of NHS goodwill anywhere in this. NHS GP goodwill cannot be sold, prohibited since 1 April 2004 and currently under The Primary Medical Services (Prohibition on the Sale of Goodwill) Regulations 2019 (SI 2019/251). A merger is about combining contracts, lists, tangible assets, capital accounts and premises, not buying goodwill.

It is also worth distinguishing a true merger from other arrangements that look similar. A merger (two partnerships becoming one) is different from a takeover, from a single partner moving between practices, and from a federation or primary care network collaboration that leaves each practice legally separate. This guide focuses on the merger of partnerships into one combined practice; the other arrangements have their own mechanics.

What happens to the two partnerships and their capital accounts

A merger usually means the partners of both practices entering a single new partnership deed, with one combined partnership going forward. The partners remain self-employed, the combined partnership files one SA800, and each partner's share flows to the partnership pages (SA104) of their personal return. The new deed must address profit-sharing across the enlarged partner group, how decisions are made, and how each side's pre-merger reserves are treated, so it is one of the first documents to agree.

The capital accounts

Each practice's capital and current accounts have to be brought together. In practice that means reconciling the two sets of accounts, valuing the net assets, and establishing each incoming partner's capital position in the combined partnership. Where one practice brings more net assets or premises than the other, the deed sets how that imbalance is handled, whether by capital adjustments, a timetable to parity, or separate property arrangements that keep the property economics apart from the trading partnership. The figures are practice-specific, so do not assume a standard outcome. For how capital accounts are presented, see reading GP partnership accounts, and for the parity concept where capital is equalised, see buying into a GP partnership and capital parity.

Pre-merger profits and reserves

Each practice's profits up to the merger date, and any tax reserves, need to be settled and allocated to the pre-merger partners before the combined accounts run. The deed and the accountants set the cut-off, so that pre-merger profit belongs to the partners who earned it and the combined accounts start cleanly. Getting this cut-off wrong is a common source of later disputes, so it is worth pinning down early.

The contracts and the patient lists

The GMS or PMS contracts and the registered patient lists are central to a merger. Typically the contracts and lists are combined under the surviving contract or a new contract, which requires the agreement of the commissioner (the integrated care board or NHS England). The contract type (GMS, PMS or APMS) and any list-size funding carry through to the merged practice: core funding is the Global Sum, weighted by the Carr-Hill formula, plus QOF, enhanced services and Primary Care Network or ARRS funding. There is no single national per-patient value, because these figures are weighted and uplifted annually.

The key point for planning is that this is a regulatory and commissioner-led process running alongside the tax and accounting work, with its own approvals and timetable. The contract and list combination, the deed, the accounts reconciliation and the premises all need to land together. For the contract and income context, see the complete GP partnership tax guide.

From a tax and accounting standpoint, the thing to watch is timing. The commissioner's approval of the contract and list combination effectively sets when the practices become one for operational purposes, and that date needs to line up with the accounting cut-off and the partnership deed. If the legal merger, the contractual merger and the accounting merger are dated inconsistently, you can end up with awkward stub periods and a muddled allocation of pre-merger profit. Coordinating those dates is not glamorous work, but it is what keeps the closing accounts and the partners' tax positions clean, and it is far easier to plan in advance than to unpick afterwards.

The premises

Premises are often the most complex strand of a merger. Each practice may own or lease its surgery, frequently through a separate property partnership or LLP outside the medical partnership. A merger has to decide which premises survive, whether one site closes, how the property partnerships combine or whether they stay separate, and how owners are bought out or brought in. Notional rent (for owner-occupiers, on a current-market basis assessed by the District Valuer) and legacy cost rent affect the property economics, and valuations are property-specific, so there is no standard figure to quote.

A merger can also change the last man standing risk, the risk that fewer owners are left carrying a larger property liability, sometimes relieving it and sometimes concentrating it. Bringing two owner groups together can spread a property obligation across more partners, which eases the standing liability; equally, if a merger leads one site to close and its owners to be bought out, the remaining liability can become concentrated on fewer people. Whether a merger improves or worsens the position is therefore practice-specific, and it is worth modelling rather than assuming. For the ownership picture, see owning versus renting GP surgery premises, and for the standing-liability risk, see the last man standing premises risk.

Whether the property partnerships combine or stay separate is itself a decision with consequences. Keeping the property in one or more separate property partnerships, distinct from the medical partnership, is common and can simplify how ownership, notional rent and buy-outs are handled; combining everything into one entity is also possible but changes how the property economics interact with the trading profit. There is no single right answer, and the choice depends on who owns what, the state of any borrowing, and how the partners want to share the property going forward. Because premises so often carry the largest figures and the longest-running obligations in a merger, it is usually the strand that benefits most from early, specific advice.

The pivotal tax question: cessation and recommencement, or continuation?

Why it matters

The single most important tax question on a merger is whether, for income tax, the old businesses cease and a new one commences, or whether the merged business continues an existing trade. This affects the partners' final or continuing basis position, the treatment of brought-forward trading losses, and how the accounting date is handled. Because the consequences are so different, it is the question to settle with your accountant early, before the legal and contractual steps are locked in.

It helps to see why the distinction carries so much weight. If the old businesses cease, the partners of each ceasing practice reach the end of their notional trade, the closing-year rules apply, and any reliefs or charges that crystallise on cessation come into play. If instead the merged business is a continuation, nothing crystallises: the partners simply carry on, taxed on the trading profits of the same enlarged business. The same merger, depending on how the facts fall and how the accounting date is handled, can therefore produce two quite different sets of tax consequences for the same group of doctors. That is exactly why it is not a question to leave until the closing accounts are prepared; by then the legal and contractual structure that drives the answer has usually been fixed.

When it is a cessation and a commencement

Where the facts show the merged business is different in nature from the two original businesses, the normal cessation rules apply. HMRC's Partnership Manual at PM135200 puts it plainly: if the facts show that business C is different in nature from business A and business B, the normal cessation rules apply both to business A and to business B, and the normal commencement rules to business C. The practical effect is that a cessation crystallises the closing-year position for the ceasing businesses, and post-reform it can accelerate any untaxed 2023/24 transition profit still being spread (see our basis period reform guide for that point).

When it is a continuation

Where the activities of the two practices are similar in nature and the merged business has the same essential characteristics as both, the merged business can be a continuation, an enlarged version of an existing business rather than a new one. HMRC's Partnership Manual at PM135300 explains that where the merged business may properly be described as a single business with the same essential characteristics as both, it is treated as a continuation; particularly where it keeps the same accounting date, the partners carry on being taxed on the trading profits of their notional trade and brought-forward losses are unaffected.

Here is the GP-specific observation, offered as illustrative reasoning rather than as a ruling: two NHS general practices delivering the same primary medical services are often similar in nature, which points towards continuation. But the treatment turns on the actual facts and on how the accounting date is handled, so it must be confirmed case by case. Do not assume a merger of two NHS practices is automatically a continuation (or automatically a cessation); confirm it with your accountant on your facts.

The accounting date deserves particular attention, because PM135300 ties the continuation treatment closely to keeping the same accounting date. Two practices coming together may have had different year ends, and the choice of accounting date for the combined practice is not purely administrative: it can influence whether the merged business is treated as carrying on an existing trade or as starting a new one. Since basis period reform moved everyone to a tax-year basis, aligning the accounting date with the tax year removes the need to apportion profits across periods, but the handling of the date on a merger still has to be thought through alongside the cessation-versus-continuation question rather than decided in isolation. This is one of the more technical parts of a merger, and it is precisely the sort of point an accountant should pin down early.

A further reason to settle the position early is that the two limbs are not always clean opposites in practice. The facts of a real merger can contain elements pointing each way, and HMRC applies the "different in nature" and "similar in nature" tests by reference to the wider business-succession guidance, looking at the activities, the assets, the customers (here, the patient base) and how the combined business is run. The point of this page is not to give you the answer for your merger, which depends on those facts, but to make sure you know the question exists, know that it is consequential, and raise it with your accountant before the structure is fixed.

The notional-trade lens

It helps to remember that each partner has their own notional trade. PM163090 explains that a partner's notional trade commences when they join and ceases when they leave (or when the actual trade ceases), so the cessation-versus-continuation question is applied through whether each partner's notional trade continues, or ceases and recommences, on the merger. That is the lens your accountant uses to work out each partner's position; the underlying basis-period mechanics are in our basis period reform guide.

Capital gains tax on a merger

A partnership is transparent for capital gains tax, so where partners' fractional interests in chargeable assets such as the premises change on a merger, that can be a CGT event for the partners whose interests reduce. HMRC's Statement of Practice D12, with merger-specific guidance at CG27700, governs how those merger-driven changes in fractional interests are treated. Whether a gain actually arises depends on revaluation and consideration, so it is a specialist computation and no figures should be assumed. Get the premises interests reviewed as part of the merger planning, and see the complete GP partnership tax guide for the CGT and relief context.

The reason a merger can throw up a CGT point is that combining two practices almost always shifts who owns what share of the underlying assets. If, before the merger, a group of partners held the whole of a surgery between them, and after the merger they share it with a wider group, each original owner's fractional interest in that asset has reduced. Whether that reduction produces a chargeable gain depends, as ever, on whether the asset is carried at book value or has been revalued, and on whether any consideration changes hands for the shift in interests. On a merger of two NHS practices, much of this can be handled at book value with no immediate gain, but that is an outcome to confirm on the facts, not an assumption to start from. The safe approach is to map the premises interests before and after the merger and have your accountant check each owner's position, rather than discovering a gain after the event.

VAT, payroll and the practical integration

The merged practice has to consolidate payroll for the combined staff, may inherit different software and bookkeeping systems, and should review tax reserves across the two practices. On VAT, a review is only really needed where either practice has taxable (non-exempt) income, such as a dispensary or significant private or medico-legal work; most core NHS GP income is exempt or outside the scope of VAT, so a merger of two purely NHS practices rarely changes the VAT position. Treat VAT as a review item rather than an automatic consequence, and see the complete GP partnership tax guide for the VAT context.

The payroll and systems integration is less about tax and more about not dropping anything in the handover, but it still deserves planning. Two practices will often run different payroll software, different pension and PAYE arrangements for their staff, and different bookkeeping conventions, and these have to be brought onto a single footing without staff being paid late or contributions being missed. Settling the tax reserves across the two practices is part of the same exercise: each side will have been holding back amounts to cover its partners' tax, and those reserves need to be reconciled and correctly attributed so that pre-merger tax is met by the partners who earned the pre-merger profit. None of this is glamorous, but a merger that is sound on the headline tax question and then stumbles on payroll or reserves is an avoidable own goal, so it belongs on the same checklist as the bigger items.

Decision-making in the enlarged partner group is worth a word too. A merger brings together partners who are used to their own ways of running things, and the new deed has to set out how decisions are taken, how profit is shared as the combined practice settles down, and how any differences between the two former practices are reconciled over time. Those are governance points rather than tax points, but they bear on the tax position indirectly, because the profit-sharing they establish is what each partner is ultimately taxed on. Getting the deed and the profit-sharing right at the outset avoids the kind of dispute that can sour a merger and complicate the accounts later.

A practical checklist for a GP practice merger

The strands to settle, roughly in the order they tend to come up, are:

  • Agree the new partnership deed and the profit-sharing across the enlarged partner group.
  • Reconcile and combine the two sets of accounts and capital accounts, and set the pre-merger cut-off.
  • Agree the contract and patient-list combination with the commissioner.
  • Settle the premises: which sites survive, how the property partnerships combine, and any buy-outs.
  • Get the cessation-versus-continuation treatment confirmed by your accountants early.
  • Check CGT on any premises interest changes.
  • Consolidate payroll, software and tax reserves.

Each strand has a linked page above for the detail, so use this checklist as the map and follow the links for the mechanics.

How we help GP practices through a merger

We support GP practices on the accounting and tax side of a merger, working alongside your solicitors and the commissioner process. In practice that means reconciling and combining the two sets of accounts and capital accounts, setting a clean pre-merger cut-off, modelling the cessation-versus-continuation position on your actual facts so the partners know their basis treatment before anything is signed, checking CGT on any premises interest changes, and consolidating payroll, systems and tax reserves into one practice. Because the question of whether the merger is a cessation or a continuation drives so much, we like to settle it early rather than discover it in the closing accounts. You can read more on our page for GPs, browse related guides in the GP tax and accounts category, or get in touch to talk through a merger.