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.
These notes provide guidance on the tax and NICs consequences where Local Medical Committees (LMCs) make payments to elected committee members.
There are approximately 126 LMCs in the United Kingdom (although
there is likely to be a reduction in numbers following a
reconfiguration of boundries and consolidation of both LMCs) ; one
for every Health Authority/ Board. Similar arrangements also exist
with the corresponding Boards in Northern Ireland. 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.
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.
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, and
provided certain assurances are given, you can accept that payments
to a part-time member of a LMC can be taxed as trading income as
part of the partnership profits. Further guidance on this and the
correct procedure to follow when asked for such treatment can be
found at EIM03000 onwards.
In legal terms, HM Revenue & Customs, under the powers in
Regulation 141 SI 2003/2682 (the PAYE regulations) is authorising
the payer not to operate PAYE. The use of Regulation 141 means that
the recipient cannot, at a later date, claim that there has been a
PAYE failure and claim a PAYE tax credit. But HM Revenue &
Customs will only act under Regulation 141 where the recipient
agrees in writing to include the fees as self-employed receipts.
This administrative practice 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 administrative practice outlined
above does not apply to payments to full-time members of staff
which should be taxed as normal.
The administrative practice 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).
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 EIM 01120 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
