If you are employed by the NHS, then you will have recently received your Pensions Savings Statement for the 2019/20 tax year. Now you might be wondering about special arrangements that apply for you in relation to your annual allowance charges. Let’s explore the options.
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.
Annual allowance
In an attempt to resolve staffing issues caused by the tapered annual allowance, last year the NHS of England and Wales agreed to cover any annual allowance charges incurred by clinicians in relation to the NHS pension scheme (not including any charges due to AVCs.) This was only a temporary stop-gap and the considerable increases in the Threshold and Adjusted Income limits introduced this year will hopefully resolve the issue for 2020/21.
While additional temporary measures were also taken, these new rules set out to correct a huge issue that disproportionately impacted doctors and dentists. This change could not have come at a better time as COVID-19 ravaged the world and required as many healthcare professionals to be working as possible.
You will still need to calculate any annual allowance charges as you normally would, but if you wish to benefit from the special provisions you will need to declare the charge on your self-assessment tax return by the 31 January deadline and select scheme pays.
How it works
When you elect to use the benefits, the scheme pays reduction will be applied and reflected in the annual allowance tax charge. Employers will need to provide a contractual payment of income equivalent to the reduction in the pension. The exact details have not been divulged just yet but it is still crucial you complete your calculations and elect to use scheme pays.
Who is affected?
Anyone who may be subjected to the tapered annual allowance should have received a statement.
Pension Savings Statements should be supplied automatically if the member’s pension input has exceeded the standard annual allowance during the tax year. If you have not and suspect you might have surpassed the £40,000 allowance, you should request one immediately and it should arrive within three months of a request.
If you don’t receive a Pension Savings Statement before you need to begin calculations, you will need to make an estimate of the annual allowance charge on your tax return and in the scheme pays election. You can amend your scheme pays election for up to four years following the usual deadline, but it’s best to get your calculations as accurate as possible.
Extension to deadlines
Because of the coronavirus pandemic, the deadline for the tax year 2019/20 NHS scheme pays election has been extended to 31 July 2021, but it is most likely just a one-time thing. And there’s no guarantee that HMRC won’t charge interest from the original deadline or assign penalties. Plus, it isn’t clear whether or not it will be covered by the contractual payment, so it’s in your best interest to make your elections as soon as possible.
Work with a pro
Calculating taxes, contributions, and adjusted income is a complex task, and the consequences for getting things wrong is a hefty tax bill at the end of the year. The best way to ensure you’re prepared is by reaching out to a financial professional. We perform these services for our clients free of charge, so there’s no reason not to seek a helping hand.
Taking care of doctors’ financial affairs for over 30 years – Darren Scott-Guinness is an expert in the field, working with hundreds of doctors to help them understand and work on ways around the NHS pension issue. Get in touch today.
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