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February 14, 2018
By Phil Harnby, manager at RMT Healthcare, the specialist medical division of Newcastle-based RMT Accountants & Business Advisors
The issue of seniority payments is one that has caused much vexation in primary care practices in recent years – and changes to the rules around this looks likely to cause even more for years to come.
Introduced as part of the 2004 General Medical Services contract, seniority factors payments are paid to primary care practices and form part of GP practice earnings and in most cases is paid to the individual concerned.
Seniority is awarded on a scaled basis, depending on a GP’s length of service and their qualifying income, with the latter being calculated as a fraction of their NHS profits compared to national levels of superannuable income for primary care providers.
This calculation divides GPs into one of three bands, with those earning less than a third of the national superannuable income not receiving any seniority payments.
GP’s earning between one third and two thirds of this income receive 60% of the payment, while those earning two thirds or more getting 100% of it.
In 2014, it was agreed that no new GP entrants would be admitted to this scheme, and that seniority payments would be gradually phased out over the remainder of the decade. A 15% year-on-year reduction was introduced in December last year, with a view to payments eventually disappearing altogether by 31 March 2020.
But while this sounds like a fairly simple process, the way things are being carried out could have implications for the finances of both the GPs involved and their practices for many years after that date.
The problems are arising through the disparity between the figures on which the three seniority payment bands are being calculated, which are three or four years old, and the actual figures that will only be known for certain well after each pension year has ended.
If the calculations put an individual GP in an incorrect band, so that they receive a level of seniority payment above or below the band in which they should be, or indeed don’t receive one at all when they should, then there are going to be remuneration and tax issues arising that won’t be apparent until several years afterwards.
Given that it’s likely to be older GPs that will mostly be affected by this, it’s very possible that many of them will have retired by the time the error is unearthed, and there could be serious logistical issues in a practice clawing back money that it shouldn’t have paid out from someone who no longer works there, especially if, for example, it has already been spent or they are living on the other side of the world.
Conversely, an unexpected demand for payment that hasn’t been planned for, and that’s now being asked for perfectly legitimately, could leave a practice with significant cashflow problems.
In reality, there’s no easy way to tackle these problems in advance, but to protect both sides, it’s absolutely vital to have a robust partnership agreement in place that addresses these issues and includes agreed procedures for managing them if and when they arise.
Taking proper financial advice on how to do this is essential, as is addressing them in advance – doing so unexpectedly in the future without proper planning could be a very painful, costly and time consuming exercise.