AISMA calls on Treasury to take action to avert huge tax bills for thousands of GPs
May 26, 2022
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.
Read the letter to HMT in full
Read the response from HM Treasury – 4 July 2022
VAT blow for PCN clinical directors
May 20, 2022
The Association of Independent Specialist Medical Accountants has confirmed that management work carried out by primary care network (PCN) clinical directors could be subject to VAT. AISMA has been seeking clarification from HMRC on this issue since 2019 when PCNs were first established.
The clarification was confirmed in updated PCN tax guidance, presented in a technical briefing to AISMA accountants today (Friday 20 May) at the Association’s 25th annual conference by Jonathan Main, VAT and Indirect Taxes Partner at MHA Moore and Smalley, and AISMA’s specialist VAT lead.
Mr Main said: “When PCNs were first set up there was an assumption that the work carried out by PCN clinical directors would be exempt from VAT because they would be involved in healthcare services. However, HMRC does not agree where the role of the clinical director is leading and managing the PCN and supporting practices with planning, direction and governance, rather than directly concerning the protection, maintenance or restoration of the health of the patient.”
This means that the work carried out by PCN clinical directors on behalf of the practices in the network would now be a standard rated service. Any individual or business organisation providing services exceeding the VAT-rated services threshold of £85,000 in any 12-month period must register for VAT.
Andrew Pow, AISMA board member, said: “The way PCNs have been commissioned does not work from a VAT perspective, particularly in relation to staff employed to work across practices, as illustrated by this clarification from HMRC.
“Those who have taken advice regarding re-structuring, for example moving the PCN employed staff within a federation or company owned by the PCN members, may be able to manage any VAT exposure using a cost sharing exemption. However, many PCNs are loose arrangements with no formal structure for dealing with VAT.
“This could lead to a position where VAT becomes due which would not be recoverable. This would reduce the budget available to the PCN by 20%.
Mr Pow added that the clarification means that there is now an urgent need for PCNs to look at how they are structured to mitigate the risk to practices employing staff and supplying them to other practices in the network.
“It’s not simply a question of buying an off-the-shelf company and getting on with it. The company needs to be set up correctly, with shareholdings allocated to each of the participating practices in the network, and a cost-sharing arrangement put in place. These are complex and time-consuming issues for PCNs to deal with and specialist accountancy and legal advice will be required.”
Consultation outcome: Proposed changes to NHS pension contributions
February 16, 2022
The Department of Health and Social Care has published its response to the consultation setting out proposed changes to member contributions to the NHS Pension Scheme.
Commenting on the response, Deborah Wood, chairman of the Association of Independent Specialist Medical Accountants and healthcare services partner at MHA Moore and Smalley, said:
“Postponing the changes to pension contributions until 1 October 2022 will create complexities for practice payroll systems and AISMA’s view is that implementation from April 2023 would be preferable.
“Moving the tiered rate contribution closer to the 9.8% overall cost of funding required for the pension scheme is sensible and will benefit most GPs whose earnings are in the higher bandings. Sensible too is the reduction in due course of the number of tier bands.
“We also welcome the move to basing tiers and contributions on actual pensionable pay, rather than whole time equivalent pay. However, it is disappointing that the opportunity was not taken to also remove the need for annualisation for GPs who are members of the pension scheme.”
“The 2022/23 annual certificate of pensionable profits for both partners and salaried GPs will now need to accommodate a mid-year tiered rate adjustment calculation, adding yet more complexity to the process.”
GPs set to miss out on compensation for pension tax charges
February 3, 2022
The Association of Independent Specialist Medical Accountants (AISMA) is calling for an extension of the 11 February deadline for GPs in England to claim for compensation against the pension annual allowance tax charge for 2019/20 because many GPs have not received the information they need to make a claim.
A special compensation arrangement was set up for clinical staff caught by the tax charge during the year 2019/20. Under the arrangement, members of the NHS pension scheme elect for the scheme to pay the tax charge on their behalf. When they retire, they are then compensated for the effect of the deduction on their income from the pension scheme.
GPs in England must first submit a ‘scheme pays’ election to NHS Pensions and then submit a claim for compensation to PCSE by 11 February 2022. Before they can make a claim, they need to receive a pension savings statement for the year from NHS Pensions. However, many GPs have yet to receive their pension savings statements and nor have their pension records been updated.
James Gransby, AISMA vice-chairman and partner at RSM UK Tax and Accounting, said: “GPs are unable to make an accurate claim for compensation if they don’t have information they need about the growth of their pension benefits. Through no fault of their own many GPs are at risk of losing compensation which could be worth thousands of pounds across the years of their retirement.”
Andrew Pow, AISMA board member and healthcare partner at Mazars, added: “GPs should be allowed a dispensation so that they can submit a claim at the point they have received information from NHS Pensions about their annual allowance charge for 2019/20. Any GPs who think they may be at risk of a charge should be talking to their accountants about this now and consider making an estimated claim.”
Find an accountant
AISMA statement: PCSE Online
June 22, 2021
Responding to the problems highlighted by the BMA concerning PCSE Online, Deborah Wood, chairman of the Association of Independent Specialist Medical Accountants (AISMA), said:
“AISMA fully supports the idea of building a system that allows practices more control of their financial records.
“However, disappointingly, the launch of PCSE Online has exacerbated the problems GPs and their practices face when interacting with Primary Care Support England.”
Ms Wood, who is Healthcare Services Partner at MHA Moore and Smalley, continued: “Users have had difficulty in logging onto PCSE Online to access any information and numerous problems with the system have been identified by AISMA members. These include inaccurate fee statements which mean practices will have difficulty reconciling monthly payments.
“Pension submissions through the online system do not deal with the legacy problems that remain in the National Health Application and Infrastructure Services (NHAIS) systems. This will increase the time and effort needed to correct pension records.
“While the launch of any new system will have snags that need fixing, PCSE Online is currently not fit for purpose and AISMA is calling for urgent rectification. In the case of fee statements, this needs to be fixed immediately.”
AISMA’s influence yields positive pension news for GPs and practice managers
June 1, 2021
The suggestions made by the Association of Independent Specialist Medical Accountants (AISMA) in response to a recent government consultation on the NHS Pension Scheme have yielded good news for GP practices affected by final pay control rules. The official response, published last week on the gov.uk website, includes AISMA suggestions which will be included in reforms to the final pay control regulations.
Final pay controls were introduced on 1st April 2014 to stop the abuse of the NHS Pension Scheme, whereby a practice gives a large pay rise to someone before retirement in order to boost their pension. It also applied to increases in profit shares for non-GP partners, including practice managers. This can result in a hefty charge being levied on the GP practice.
James Gransby, AISMA Vice Chair and partner, RSM UK Tax and Accounting Limited, said: “The proposals will significantly reduce the number of charges being levied by increasing the cases where exemptions apply. One of the areas that concerned AISMA members was pensionable pay increases for non-GP partners due to an increase in profit share percentage as a result of another partner reducing their sessional commitment. These partners will now be exempt from final pay control rules because another partner leaving the practice has been deemed to be outside the employer’s control.”
Mr Gransby continued: “It is estimated that over 20% of practices have been landed with a final pay controls charge, many with substantial six-figure sums. The rules have now been relaxed and these practices now have a six-month window of opportunity to have these figures revised downwards, or eradicated altogether, if the charge was levied since 1 April 2018 and if they can benefit from the new rules.”
Mr Gransby warned that the legislation is complex, as are the changes, and that practices should seek specialist advice to assess whether they can benefits from the changes retrospectively.
New episode of the AISMA Finance Clinic now available
May 14, 2021
Want to know more about how to maintain healthy practice profits without compromising on patient care? AISMA accountants James Gransby, Abi Newbury and Andrew Burwood give their expert advice and top tips in the latest episode of the AISMA Finance Clinic.
The AISMA Finance Clinic, an initiative developed in collaboration with Practice Index, brings together members of the Association of Independent Specialist Medical Accountants to answer questions from practice managers about topical financial issues in UK primary care. Each episode explores a different theme, such as preparing the year-end accounts, budgeting, cashflow, workforce and practice profitability.
Follow this link to see the latest episode
AISMA response to 2021 Budget
March 3, 2021
James Gransby, Vice-Chairman, Association of Independent Specialist Medical Accountants, said:
“In a widely predicted move, the lifetime allowance limit for pensions has been frozen at £1,073,100 for the tax years up to and including 2025/26. This would affect anyone expecting to draw an NHS pension of over £46,656 and with this limit now being frozen, more people will be caught by this tax charge. The effect is an extra £21,000 tax charge on the pension pot at retirement.
“There will be some extra costs for GP practices paying staff the National Living Wage who will see this increase from £8.72 to £8.91 per hour which represents a 2.2% increase.
“With personal tax allowances frozen, doctors who are higher rate tax payers should also expect to pay extra tax. For any doctor earning over £55,000 this will equate to around £100 a month more tax by 2026.”
Response to proposals to rectify pension discrimination
February 5, 2021
AISMA welcomes the proposals made by the government to rectify the discrimination that arose from transitioning NHS pension scheme members to the 2015 Scheme. The decision to opt for the Deferred Choice Underpin (DCU) takes the pressure away from any immediate need to make decisions and members should therefore be no worse off than they are now and many will see significant improvements to their pension benefits from opting back into the legacy pension schemes.
There will be additional positive consequences for many higher earners through reduced annual allowance tax charges which will need retrospective adjustment.
The changes will put significant pressure on NHS Pensions (and their regional equivalents) to update pension records with an end date set of 1 October 2023 to do this. NHS Pensions will also need to consider the complicated issues around how to allow GP’s who have previously opted out to unpick these decisions if appropriate.
Response to Treasury rejection of NHS Pension Scheme flexibility proposals
February 4, 2021
While AISMA welcomed changes that were made to the annual allowance tapering rules in the March 2020 Budget, many higher earning GPs will still exceed the allowance and face tax charges.
The Treasury has confirmed that no further flexibilities are being proposed to reduce the scope of those being impacted.*
A significant issue remains for GPs in receiving timely and accurate pension information and while improvements have been made, there are gaps remaining in many pension records, making it difficult for GPs to assess their possible tax liabilities.
The current system of estimated scheme pays elections having to be submitted and then corrected several years later is unhelpful for pension scheme members, who may ultimately pay for this through increased administration charges.