Four things make accounting for a South African medical or allied health practice different: revenue is billed to medical schemes rather than patients and settles unpredictably, a meaningful share of claims is rejected or short-paid, most practices are incorporated as personal liability companies where directors are jointly liable for company debts, and locums sit in a permanent grey area between contractor and employee.
The consequence practitioners feel is cash flow. A practice can bill R480,000 in a month, report it as revenue, and receive R390,000 of it across the following ninety days — with R30,000 never arriving at all.
1. Medical scheme revenue and the settlement gap
The billing cycle: you treat the patient, submit the claim to the scheme, the scheme adjudicates, and payment follows — typically 30 to 60 days, sometimes longer.
Revenue is recognised when the service is rendered, not when the scheme pays. That is correct accounting, and it is why reported profit runs well ahead of cash.
What must be tracked separately:
| Line | Why |
|---|---|
| Billed to schemes | Gross claims submitted |
| Short-paid | Scheme paid less than tariff — this is a real revenue reduction |
| Rejected claims | Coding errors, membership issues, benefit exhausted |
| Patient co-payments | Owed by the patient, with a different collection risk |
| Cash and private patients | Settles immediately |
Treat scheme debtors and patient debtors as separate books. They behave completely differently. A scheme will pay, eventually, and disputes are resolvable through a defined process. A patient with an outstanding co-payment eighteen months after treatment is usually not going to pay.
2. Rejections and short payments
This is the number most practices do not measure, and it is frequently the difference between a good year and an average one.
Common rejection reasons: incorrect ICD-10 or procedure coding, membership lapsed or suspended, benefit limit exhausted, missing pre-authorisation, and claims submitted outside the scheme's time limit.
What to measure monthly:
Rejection rate — rejected claims as a percentage of claims submitted
Short-payment rate — the gap between billed and paid on accepted claims
Days to payment, by scheme
Why the analysis pays for itself: rejections cluster. A practice with an 8% rejection rate usually finds that two or three specific causes account for most of it — a coding pattern, one scheme's pre-authorisation requirement, or a front-desk process that does not verify membership. Fixing the cause is a one-off effort against a permanent recovery.
The time limit matters. Schemes impose a submission window, commonly four months. A claim discovered late is a claim lost entirely, which is why unresolved rejections need working weekly rather than quarterly.
Bad debts. Where a claim is genuinely irrecoverable and was previously included in income, it is deductible. Keep evidence of the recovery attempts — SARS asks. See what business expenses are tax deductible.
3. The Inc structure and what it means
Most medical and allied health practices that incorporate do so as a personal liability company — the "Inc" you see in practice names.
What distinguishes it: in a personal liability company, the directors and past directors are jointly and severally liable, together with the company, for the debts and liabilities contracted during their periods of office.
In plain terms: the limited liability protection an ordinary Pty Ltd provides does not apply in the same way. That is deliberate — it reflects the professional accountability expected of regulated practitioners.
Practical consequences:
Company debts are your debts, alongside the company's
Past directors remain liable for debts contracted during their office, which matters when practitioners join and leave a practice
Professional indemnity insurance is essential, not optional
Financial discipline matters more, because there is less separation to fall back on
Why practices still incorporate: professional body requirements, the ability to have multiple practitioner shareholders, continuity of the practice beyond an individual, and a corporate tax rate of 27% against a personal marginal rate reaching 45%.
Note on Small Business Corporation status: a personal service provider does not qualify as an SBC, and the personal services exclusion means many practices will not qualify regardless. Have it assessed rather than assumed. See what is the company tax rate in South Africa.
4. Locums: the classification problem
A locum working occasional sessions across several practices, using their own judgement, is a genuine independent contractor.
A locum working fixed sessions at your rooms, on your equipment, on your schedule, week after week, is at real risk of being an employee for tax purposes.
The statutory presumptions bite where the person works mainly at premises occupied by the client and is subject to control or supervision as to the manner of their work or their hours. Clinical autonomy helps the contractor argument; a fixed roster does not.
If SARS reclassifies: the practice owes the PAYE it should have deducted, plus UIF, SDL, penalties and interest at 10.25% per annum. On a locum paid R60,000 a month for two years, that comfortably exceeds R400,000 — and in a personal liability company, the directors are jointly liable for it.
The safe harbour: the presumptions do not apply where the locum employs three or more full-time employees who are not connected persons.
Practical steps: contract per session or per outcome rather than for fixed hours, do not roster them like staff, ensure they genuinely work for other practices and keep evidence of it, and have the arrangement reviewed where it is material. See independent contractor or employee.
VAT: usually not applicable, with exceptions
Services provided by a registered medical practitioner in the course of their profession are generally exempt from VAT. No VAT is charged on consultations, and no input VAT can be claimed on the practice's costs.
But not everything a practice does is exempt. Common taxable activities include:
Dispensing and selling products — supplements, devices, cosmetic products
Cosmetic procedures not undertaken for a medical purpose
Room rental to other practitioners
Medico-legal reports and expert witness work
Certain wellness and non-clinical services
Where a practice makes both exempt and taxable supplies, it may cross the VAT registration threshold on the taxable portion alone, and must then apportion input VAT on overheads that cannot be attributed to one or the other — normally on a turnover basis.
Only taxable supplies count towards the R2.3 million threshold. Exempt consultation income does not.
This is genuinely complex and practice-specific. A dispensing practice or an aesthetics practice needs the position assessed properly rather than assumed. See the VAT registration threshold.
The numbers to watch monthly
| Metric | What it tells you |
|---|---|
| Billings by practitioner | Productivity, and the basis for any profit share |
| Rejection rate | Where the front-desk and coding process is leaking |
| Short-payment rate | Whether you are billing at tariffs schemes actually pay |
| Days to payment, by scheme | Which schemes to chase and which to plan around |
| Scheme debtors vs patient debtors | Two different collection problems |
| Cost per consultation | Whether the fee structure covers the cost of delivery |
| Staff cost as a percentage of billings | The largest controllable cost in most practices |
Practices with multiple practitioners need billings and costs by practitioner, not just in total. Profit-share arrangements built on total practice profit rather than individual contribution are a recurring source of partner disputes.
Cash flow: the structural problem
The squeeze: you pay staff monthly, rent monthly and consumables on 30 days, while scheme payments arrive 30 to 60 days after claiming, and a portion never arrives at all.
What helps:
Submit claims daily, not weekly. Every day of delay is a day added to the cycle
Work rejections within the week they are received, before the submission window closes
Collect co-payments at the point of service. A co-payment not collected on the day is frequently never collected
A 13-week cash flow forecast, built from expected scheme settlements rather than from billings — see how to build one
Hold a reserve. Practices are vulnerable to a single scheme delaying a payment run
Frequently asked questions
How does accounting work for a medical practice in South Africa? Revenue is recognised when the service is rendered rather than when the medical scheme pays, so profit runs ahead of cash. Scheme debtors and patient debtors are tracked separately, rejections and short payments are measured monthly, and the practice's VAT position depends on how much of its income is taxable rather than exempt.
Do medical practices charge VAT in South Africa? Services provided by a registered medical practitioner in the course of their profession are generally exempt, so no VAT is charged and no input VAT is claimable on those costs. Dispensing, cosmetic procedures not undertaken for a medical purpose, room rental and medico-legal work are commonly taxable, and only taxable supplies count towards the R2.3 million registration threshold.
What is a personal liability company and why do practices use them? An Inc is a company in which the directors and past directors are jointly and severally liable with the company for debts contracted during their periods of office. Practices use them for professional body requirements, multiple practitioner shareholders, continuity, and the 27% corporate rate against a personal marginal rate of up to 45%.
Are locums employees or independent contractors? It depends on the substance. A locum working occasional sessions across several practices with clinical and scheduling autonomy is generally a contractor. One working fixed rostered sessions at your rooms week after week risks being an employee, in which case the practice owes the PAYE not deducted plus penalties and interest.
Can a medical practice qualify as a Small Business Corporation? Often not. A personal service provider does not qualify, and the exclusion for income from rendering personal services rules out many practices. It should be assessed rather than assumed.
How should I handle rejected medical scheme claims? Work them weekly rather than quarterly, because schemes impose a submission window — commonly four months — after which the claim is lost. Measure the rejection rate monthly and identify the recurring causes, since rejections usually cluster around a small number of fixable process issues.
Why does my practice show a profit but have no cash? Because revenue is recognised when you treat the patient while payment arrives 30 to 60 days later, with a portion short-paid or rejected entirely. The gap between billings and receipts is structural in practice accounting.
Practice numbers, monthly
A practice run on annual financial statements is being run on information that is up to eleven months old, in a business where a two-point movement in rejection rate is worth real money.
Smartbook works with medical and allied health practices on monthly management accounts showing billings, rejection and short-payment rates, and scheme debtors by ageing — alongside payroll, the locum classification position, and the VAT apportionment where a practice has taxable income.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. The VAT treatment of medical services, locum classification and personal liability company obligations are fact-specific — take advice on your own practice. Professional body and HPCSA requirements are outside the scope of this article. General guidance, not advice on your circumstances.
Primary sources: SARS — Value-Added Tax · SARS — Budget 2026 Frequently Asked Questions · Companies Act 71 of 2008 · SARS — Pay As You Earn