Tax treatment of payments from Local Medical Committees to part-time committee members
Doctors (GPs) may be invited to sit on a Local Medical Committee (LMC) to represent the views of their Practice. The LMC may make payments to the part-time committee members. The following tax treatment of those payments was agreed with HM Revenue & Customs in Spring 2006 as an extra-statutory concession. From 6 April 2018 this concession was enacted by the Enactment of Extra-Statutory Concessions Order 2018 (S.I. 2018/282).
These notes provide guidance on the tax and NICs position where Local Medical Committees (LMCs) make payments to elected committee members.
There are approximately 95 LMCs in the United Kingdom. LMCs represent the interests of General Practitioners (GPs) locally. They are required to negotiate and consult with the Health Authorities on a wide range of issues that may have an impact on all GPs (directly and indirectly) and ultimately their patients. LMCs are bodies defined by statute (in England and Wales) and their functions based upon a model constitution. In Scotland, the equivalent body is an Area Medical Committee although there may be some differences in composition. Similar arrangements also exist with corresponding Boards in Northern Ireland.
A LMC may appoint staff and appoint GPs from the committee to act as Chairman/woman, Treasurer and Secretary (if the Secretary is not already employed). However, most members of a LMC are part-time committee members who only attend LMC meetings for a few hours each month. These part-time members are normally local GPs who are self-employed professionals drawn from local medical practices. They are elected to represent the interests of GPs in the area covered by the LMC.
Many LMCs pay their elected members for attendance at meetings. Payments are made to defray the expenses of committee members and to provide some incentive for GPs who undertake such work, which does, necessarily, involve them in some absences from their practices. Over recent years, the proportion of LMCs making payments to their elected members for their committee and other work has increased. These payments are generically referred to as “honoraria”.
Some LMCs, recognising the increasing workload falling on busy GPs, have appointed full-time Chief Executives or full-time Secretaries employed under written employment contracts. Such Chief Executives and full-time Secretaries are not LMC members and are, as appropriate, subject to PAYE and Class 1 NICs.
Nature of the appointment
Elected LMC members give their time voluntarily and are not employed under contracts of employment. However, because of the way LMCs are set up HM Revenue & Customs considers that elected committee members are office holders.
The strict legal position is that payments to office holders by LMCs are taxable as employment income. PAYE should be operated.
However, difficulties can arise where a partner holds an office or employment and the fees are to be included with partnership income and pooled amongst the partners. This includes the situation where a member of a GP partnership provides his or her services as a member of a LMC. In such circumstances, provided specified conditions are met, the payment is exempt from income tax under Part 2 of ITEPA and is treated for income tax purposes as trading income as part of the partnership profits. Further guidance on this and the correct procedure to follow when such treatment applies can be found at EIM03000 onwards.
This exemption only applies where the LMC fee is paid into the partnership accounts and pooled for division amongst the partners. Where the LMC fee is retained as personal income of the individual committee member it should be taxed as employment income under PAYE. Any honoraria should also be taxed under PAYE.
As noted above, LMCs may also employ a full-time chief executive and other staff. The exemption does not apply to payments to full-time members of staff which should be taxed as normal.
The exemption that applies for tax purposes does not apply for NICs purposes. The normal NICs rules apply to payments from LMCs to committee members. Where committee members are paid for providing their services as office holder to the LMC the payments are liable for Class 1 NICs.
Most LMC members provide their services on a part-time basis. Typically, this might be for a few hours each month. Daily rates of payment to a LMC member range up to £400, or pro-rota for the time of less than one day. The amounts that are repaid are subject to review on an annual basis. Therefore most part-time LMC members will be paid less than the earnings threshold, in which case there will be no Class 1 liability.
From April 2003, where payments that are earnings for Class 1 NICs purposes are introduced into the profits of the GP’s partnership they do not need to be included in profits subject to Class 4 NICs. This follows the introduction of Regulation 4 of The Social Security (Contributions) (Amendment No. 7) Regulations 2003 (SI 2003/2958).
Financial Loss Allowance
Rather than paying remuneration to committee members for providing their services, LMCs may pay a financial loss allowance. Where a financial loss allowance is paid then, for tax purposes, the treatment at EIM01120 onwards can be applied to the payment. Any such payments to the GP’s practice should be taxed as part of the partnership profits. For NICs purposes there is no Class 1 liability on a financial loss allowance although the payment should be taken into account in working out any Class 4 NICs due. Where the payment is not actually a financial loss allowance but rather remuneration calculated to include an amount to cover the cost of providing a locum the whole amount is subject to Class 1 NICs.
Whether a payment is a financial loss allowance or something else, will depend upon the particular facts. Very broadly, we view remuneration as something paid to a committee member as a reward for services. This is different from a financial loss allowance which is either paid to an individual GP to compensate him or her for the reduction in earnings due to his or her absence while carrying out LMC duties; or is a payment made to the practice to cover a hole in the partnership’s profits caused by the GP’s absence on LMC business. In order to be treated as a financial loss allowance there must have been a financial loss. So there must have been a loss of fee income because the GP was not available for work.