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Finance Diary, January: What will the loss of seniority pay mean for your practice?

As memories of Christmas and the New Year fade, the January tax bill looms. The GP contract changes will bring uncertainty for many, but particularly worrying are the changes to seniority payments.

Currently GPs have to work as principals for two years before they receive seniority pay. The amount depends on length of service. For example, a GP with six years’ service in the NHS receives £600 a year. After 20 years they receive £4,663 a year and with 30 years’ service this increases to £8,692.

Anyone in receipt of seniority payments at 31 March 2014 will continue to receive them until 31 March 2020, when the scheme will stop. During this period they will continue to receive annual increases, which sounds promising on first hearing. However, young partners who have not done two years as a principal on 31 March 2014 will receive nothing.

Growing resentment

The Department of Health has said it will reduce the amount of money in the seniority fund by 15% a year. The hope is that as GPs on high seniority rates retire, this will balance the 15% funding reduction and it is likely that enough GPs will retire in the first few years to make the numbers work.

It may be, however, that we reach a point where retirements are not freeing up enough money to cover the 15% reduction, but the real risk of these changes is that they could lead to resentment among younger GPs. While they may have been happy for a senior GP to receive £8,000 more a year because one day they would receive it themselves, they may not be so accepting now.

One solution would be for practices to pool seniority. All the partners should discuss and agree the new arrangements and they should be written into the partnership agreement. It would also be wise to talk to your practice accountant to ensure that superannuation forecasts are updated and the profit allocations are dealt with correctly in the accounts.

As practices find it increasingly difficult to attract hardworking young partners, pooling (or partial pooling) of seniority could become a way to draw new talent into the practice.

Bob Senior is chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly

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