The Association of Independent Specialist Medical Accountants is calling on the Treasury to take action to prevent thousands of GPs being landed with punitive tax charges due to the current steep rise in inflation.
In a letter to The Rt Hon Lucy Frazer QC MP, Financial Secretary to the Treasury, the Association highlights how mounting concern within the medical profession over perceived unfairness in the annual allowance tax could lead to GPs either reducing sessions or leaving the NHS.
The letter explains the disconnect between how inflation adjustments are calculated by HMRC, compared with how the NHS pension is calculated. Whereas the calculation is meant to ensure that pension growth simply resulting from inflation is disregarded, this is not the case.
This means GPs could well end up paying tax simply due to inflation which was never intended by the legislation. The amounts modelled by pensions experts for an average earning GP are high.
Andrew Pow, AISMA board member, said: “The pensions annual allowance tax charge remains a significant barrier to retention of doctors to work sessions in the NHS at a time when the NHS arguably needs them most. GPs will need to consider whether they wish to work additional shifts, for example in primary care network roles or for out of hours organisations.”
AISMA is proposing three short-term actions to resolve the issue:
1 – Amend Section 235 (3) of the Finance Act 2004 so that the inflation measurement for NHS workers is aligned between HMRC and NHS Pension calculations. This will smooth out growth calculations to remove all inflation differences enabling fairer taxation but also making it easier to predict ahead.
2 – Recognise years of negative growth and allow them to be carried back to the previous year to allow matching of tax charges to real growth over a longer period.
3 – Allow NHS England and the devolved bodies to replicate the 2019/20 compensation scheme to protect clinicians from pension growth so that they are freed up to work at maximum capacity in the NHS.