Even though financial advisors have been vocal about the complexity of the tapered annual allowance calculations, it seems that HM Revenue and Customs cannot understand why taxpayers are confused regarding the rules and regulations surrounding the legislation.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
The tapered annual allowance reduces an individual’s allowance by £1 for every £2 over £150,000 an individual’s adjusted income exceeds.
Despite the former pensions minister and director of policy at Royal London, Steve Webb, appealing to HMRC about frustrations surrounding the tapered annual allowance and its impact on pensions, the government has taken the stance that ensuring whether or not the correct amount of tax has been paid is all down to the taxpayers. Dissenters insist this stance is unrealistic and have accused the HMRC of living in a “parallel universe.”
So, what makes the tapered annual allowance confusing?
Because tax situations are rarely, if ever, straightforward, when complications arise taxpayers end up on the hook for tax they weren’t aware they owed.
As it stands now, when a member hits the £40,000 annual allowance threshold, their scheme must report this milestone to the member so they can include it in their tax return. Problems occur when the tapered annual allowance causes an individual’s allowance to fall below £40,000 because their total taxable income breaches £150,000 for the year.
Unfortunately, administrators of schemes have no way of knowing when an individual hits this limit (or what their adjusted allowance will end up being) so the member’s only notification comes once they hit the standard allowance. By then, it’s too late.
HMRC argues that the amount of people breaching the threshold has remained small.
However, for many doctors and dentists, the threat of having their allowance tapered is a very real threat. This is why we recommend that healthcare professionals work closely with a financial advisor.
What support can a financial advisor provide?
Dental & Medical Financial Services can help mitigate some of the stress doctors and dentists are facing with the tapered annual allowance. We provide carry forward and tapering calculations free of charge as part of our client commitment and can potentially save you thousands in tax. The deadline to elect to use the NHS Scheme Pays is quickly approaching, so act before 31st July.
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