GPs face 60 per cent top rate of tax

Tax change could disincentivise extra work and out-of-hours care may suffer.

Thousands of GPs are facing a marginal tax rate of 60 per cent on every extra pound earned.

Plans to claw back personal allowances from high earners from April 2010, set out in last week's budget, mean GPs who earn between £100,000 and £112,590 will receive just 40p for every extra pound earned.

Average pay for partners was £107,667 in 2006/7, according to the NHS Information Centre.

The change could put many off taking on extra work such as out of hours, deputy GPC chairman Dr Richard Vautrey predicted. Doctors whose incomes are close to this 'cliff-edge' will 'look at extra work much more closely', he said.

The news comes as the Institute for Fiscal Studies revealed that, despite the Chancellor's claims, public spending will fall by 2.3 per cent a year. That would mean billions lost from the health budget, on top of the £2.3 billion of 'efficiency savings' announced in the Budget.

Dr Vautrey said the NHS would face 'difficult decisions about which services to cut'.

Personal allowances currently allow tax-free earnings up to £6,475 a year. But last week's budget said that, from April 2010, that allowance will be reduced by £1 for every extra £2 earned above £100,000.

This, in effect, raises the rate at which that money is taxed from 40 to 60 per cent. When superannuation is included, extra take-home pay falls to less than 30p in the pound.

Stuart Williamson, an accountant with Williamson West, said that 'quite a lot of GPs are going to be right in the bracket' to be affected.

The new regime's effect on cash flow is likely to be even more problematic.

Paul Kendall, an accountant with Dodd and Co, calculates that - after tax and superannuation - a GP who increases his earnings from £100,000 to £110,000 would be entitled to £2,550 extra pay.

However, the Inland Revenue takes both 'balancing payments' to cover last year's outstanding tax, and 'payments on account' on its predictions of this year's income. So, in the second year a GP earned £10,000 of extra income, the tax due on it would actually be £14,450.

Overall it will be nearly three years before a doctor's cash flow rises thanks to the additional income, Mr Dodds said.

A similar 'pinch point' exists at the £150,000 mark, where a 50 per cent tax rate kicks in.

Mr Kendall said such anomalies meant 'it won't be in GPs' interests to do any extra work'.

GPs may be able to cut their tax by increasing pension contributions, or shifting income to a lower-earning spouse.

jonn.elledge@haymarket.com

Measures that could affect GPs include ...

  • A new top tax rate of 50 per cent on money earned over £150,000 from April 2010.
  • The removal of £1 of personal allowance for every extra £2 earned above £100,000 - meaning an effective 60 per cent tax rate between there £100,000 and £112,590.
  • Tapering of tax relief on pension contributions down to 20 per cent, for those earning more than £150,000.
  • A temporary 40 per cent allowance for capital expenditure, for 12 months from 6 April 2009, that could help fund equipment.

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