NHS Pension Agency will pay the tapered Annual Allowance tax charge

The NHS Pension Agency have just announced that they will accept a voluntary ‘Scheme Pays’ election for 2017/18 onwards in respect of the tapered Annual Allowance.  This means that the NHS Pension Agency will pay the full tax charge in respect of a GPs pension growth exceeding either the tapered or standard Annual Allowance.

Previously the NHS Pension Agency would only pay the tax charge on the growth exceeding £40,000. So if a GP was subjected to the tapered Annual Allowance which reduced the standard £40,000 down to a minimum of £10,000, the GP had to pay the tax personally. As a result of this additional tax burden, many GPs chose to opt out of the NHS Pension Scheme.

Under the voluntary scheme rule change, GPs whose tax charge is less than £2,000, can also elect for the NHS Pension Agency to pay the tax charge, whereas previously the GP would have to pay this.

However, it is worth remembering that although the scheme will pay the full tax charge, it is still additional tax that is being paid and this will be recovered from your NHS Pension benefits so your pension when you retire will be reduced.

The NHS Pension Agency will be issuing a revised ‘Scheme Pays’ election form in respect of this change in due course. We will be reviewing all of our client’s tax returns and for those who were subject to the tapered Annual Allowance we will be contacting you to confirm whether you wish the scheme to pay the tax charge on the tapered element and we will re-do the scheme pay forms when these are available.

GPs who have opted out of the NHS Pension scheme because they did not have the money to pay the additional tax charge, may want to consider opting back in. To opt back in, you would need to contact the PCSE. You should also ensure that your superannuation deductions start on the monthly NHSE statements.

You should also be aware that under a voluntary ‘Scheme Pays’ election any interest on late payment of tax is your responsibility. This means that the tax for 2017/18 would be payable by 31^st January 2019, if the NHS Pension Agency do not pay this tax charge by this date then you would be responsible for HMRC interest. This does not apply to the tax charge above the standard annual allowance of £40,000 as it is paid under a mandatory ‘Scheme Pays’ election which gives the NHS Pension Agency another year to pay the tax after the payment date.

Example

If a high earning GP had pension growth of £65,000 in 2017/18 and a tapered Annual Allowance of £10,000, this would result in an annual allowance tax charge at 45% of £24,750. You could elect for the NHS Pension Agency to the pay the tax charge on the excess above £40,000 under a mandatory ‘Scheme Pays’ election, so they would pay £11,250 of the tax charge, but the GP would have to pay £13,500 personally.

This change means the GP can now elect for a voluntary ‘Scheme Pays’ election for the £13,500 in addition to the mandatory election, so he would have no additional pension tax to pay personally, but his pension benefits will be affected.