Philip Redhead tackles two issue facing healthcare professionals – hidden charges for GP surgeries with staff due to retire, and tax on unspent PCN funding.
In this first article on healthcare accounting matters I would like to bring your attention to a hidden charge that many GPs and their practice managers were unaware was brought in by regulations effective from 1 April 2015.
I would also like to point out a tax pitfall where funds received by surgeries’ Primary Care Networks (PCNs) have not been fully utilised as was originally intended.
Final Pay Controls
The new Final Pay Control regulations are now beginning to bite at surgeries who have staff that are enrolled into the 1995 section of the NHS Pension Scheme who are now, or will shortly, be taking their pension benefits
Members of this section of the NHS Pension Scheme have their retirement benefits computed based on one eightieth of the highest pensionable pay during their last three years of service. The NHS Business Services Authority (NHSBSA) believe this allowed manipulation of pension benefits by giving excessive pay awards at the end an employee’s service.
The regulations were introduced in an attempt by the NHS to reduce its exposure where members benefits are disproportionate to the pension contributions throughout the entirety of their service. Given that NHS pensions are not funded and paid from current contributions the motivation for this move is not hard to understand.
From 1 April 2015, if a member of the 1995 Section of the NHS Pension Scheme is given a pay rise in any of the last three years of service that exceeds the ‘allowable amount’ the surgery can be invoiced an ‘Employer Charge’ by the NHSBSA following the staff members retirement. To many surgeries this comes as an unpleasant, expensive and unexpected shock.
On retirement, the NHSBSA will look at each of the final three years of the employee’s service and compare any salary increases in each of these years with the ‘allowable amount’ computed as the previous year’s salary, uplifted by CPI +4.5%. Any increases that exceed this amount, in any of the final three years’ service, will result in an ‘Employer Charge’ being invoiced to the employer.
The ‘Employer Charge’ is calculated by working out the annual additional pension benefits the staff member will receive on any salary in excess of the ‘Allowable Amount’ and multiplying this by a factor based on the employee’s age at retirement. (These factors range from 24.1 for an employee retiring at age 50, to 13.48 for one retiring at age 75.)
This amount can become very large, e.g. an employee retiring at age 60 who has a salary in 2016 of say £25k, of £27K in 2017, £29K in 2018 and £33K in 2019 would result in a charge to their employer by the NHS on their retirement of £20,528.46.
There are a couple of exceptions to this charge that cover the sad situation where employees take death in service benefits or where an employee starts a ‘genuinely new employment’ with a new employer at a higher rate of pay. The situation where a salary increase is due to a salary sacrifice scheme that started before 1 April 2014 is also exempted.
In situations where an employee has multiple pensionable employments the employer who gave the increased is, rightly, the one that is charged.
Clinical Excellence awards are not exempt from this charge and will be invoiced to the employee’s local employer, however ‘employer charges’ relating to National Clinical Excellence Awards will be funded by the body funding the award.
In practice, when speaking with GPs and practice managers, most of them are blissfully unaware of the existence of these new rules and a number have inadvertently found themselves in situations where these charges will apply. Other surgeries have received the shock of employer charge invoices without any warning.
The regulations are not difficult to understand, the problem is lack of awareness. If you act for any GPs you should ensure they are aware of this pitfall so that they can manage their exposure to any potential charges and avoid any very unpleasant surprises in the future. I am sure they will thank you for this advice.
• Philip Redhead provides specialist tax advice and accounting services to doctors’ practices and other medical professionals, as well as dealing with clubs and associations. Call 07498 202406 or email him at firstname.lastname@example.org