You may have seen the recent press coverage* that the government has come up with new proposals for England and Wales to end the dispute with doctors over pensions.
In a nutshell the government will put forward a plan allowing doctors complete flexibility to scale down their pension contributions to avoid breaching the annual tax-free allowance.
- The allowance has been reduced from £255,000 a year in 2010-11 to £40,000 - and drops still further for the highest earners. It will also allow doctors to be given the contributions the employer would have made, meaning their pay packets could be boosted by thousands of pounds a year.
- Consultation will soon be published which favours giving public sector staff the ability to reduce contributions to zero. It is expected the changes will be introduced from April.
- To help alleviate the immediate problems, the government is also promising to allow doctors to opt out from the pension scheme for this financial year.
Philip Eagle, Hallidays Tax Director comments:
“NHS senior doctors will be pleased to see the government announce a relaxation of the draconian pension charges if pension overpayments are made. It’s a step in the right direction, however the ‘devil will be in detail’ and the government will struggle to produce a simple adjustment. I’m very interested to see how HMRC are going to implement this.”
Philip outlines the key issues:
- The actual deemed pension contribution for Annual Allowance purposes is not the physical payments made by the doctor and the NHS - which obviously can be calculated in the year. It is the change in benefits accrued during the year which is based on a combination of salary, change in salary, length of service and inflation. For example, the physical contribution could be - NHS £20,000 and doctor’s contribution £12,000 (total £32,000) deemed contribution which is the taxable amount £130,000 which produces a £54,000 tax bill (£120,000 @ 45%).
- The figure for deemed contribution is not advised to the individual until long after the tax year has finished - normally received the following October or even January when it has to be declared on their tax return.
- The calculation is on a yearly basis and contributions cannot be moved between years, therefore any adjustment needs to be done in year.
How Hallidays can help
If you are a doctor affected by these proposals, please contact Philip Eagle and his team for expert advice regarding your pension contributions and tax implications.
* Source: https://www.bbc.co.uk/news/health-49196357
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