Accounting and Tax News 

The British Medical Association has warned that the NHS is facing a future staffing crisis because of tax liabilities incurred by higher-earning employees as a result of recent pension rule changes. In a recent survey, 60% of 4,000 consultants questioned stated that they are currently considering early retirement plans, many as a result of the taxation of pension contributions (source: The London Economic ). Current annual contribution rules Ending in the tax year 2010/2011, an individual could deposit £255,000 per annum into their pension pot enjoying tax relief of between 20% to 45%/50% on those deposits. In the 2010 Autumn Statement, that amount taxpayers could now deposit annually reduced dramatically to £50,000 and it was further reduced to £40,000 in 2014. When the annual threshold was reduced, an additional tapering rule was introduced which reduced by £1 the threshold for every £2 earn above £150,000. The current situation is that anyone earning over £210,000 now only has a £10,000 annual pension threshold. Many high earners missed this announcement. Someone who earned £210,000 and invested £40,000 into their pension pot in the mistaken belief that all £40,000 of the contribution would be eligible for tax relief would now have to pay additional tax to HMRC in the sum of £13,500 (45% tax on the £30,000 paid above the threshold). Some financial advisors were able to, for a short time, completely mitigate the effects on higher earners because the current pension regulation allows taxpayers to carry forward unused pension allowances for three years. An HMRC spokesman, speaking to the I newspaper , defended the situation by stating that "The annual allowance (AA) taper affects only the wealthiest pension savers. “This change helps control the cost of pensions tax relief and ensures that the benefit they receive is not disproportionate to that of other pension savers.” Current lifetime contribution rules The current lifetime allowance for pension savings is £1,055,000 and it increases in line with inflation every year. Any payments to a pension pot which exceed the allowance are charged at 25% if paid as a pension (if you pay yourself a regular income through a drawdown plan or you purchase an annuity) or 55% if you pay the contribution in as a cash lump sum. The NHS Pension Scheme People working for the NHS are automatically enrolled into the organisation’s Pension Scheme (although they are free to withdraw from it at any time) (source: Unison ). The current rates of contributions made by members is between 5% and 14% of the “full-time equivalent pensionable pay”. In comparison to many other sectors, the contribution rate of up to 14% of pay towards a pension is high and, following the changes to pension rules in the last decade, higher earning NHS staff (medical, administerial, and leadership) are losing out because of this. Under advice from their accountants, many front-line medical staff are reducing the amount of work they do to avoid the pensions-related tax liabilities they are incurring. BBC News reports that NHS staff earning more than £110,000 a year were at risk and that those staff already near the thresholds were either taking early retirement, cutting back on their homes, or leaving the NHS pension scheme. According to GP Online , GPs in their 30s have been advised to reduce their hours because of the tax liabilities incurred by their pension contributions. According to a Guardian report in July 2019, NHS services are at threat of “meltdown” and the survival of the NHS is under “existential threat”. Large tax bills received as a result of pensions contributions have led to some senior NHS staff re-mortgaging their property to pay HMRC. Dr Tony Goldstone, a consultant radiologist and clinical director at Hull University Teaching Hospitals NHS trust, told health policy reporter Denis Campbell that, "colleagues who used to help prop up services by working additional weekends, on top of their already onerous working rotas, can no longer afford to do this. I am hearing of operating theatres not being utilised because of the inability to staff them, and rota gaps not being filled as senior staff are unable to help out." To address the situation, the government has proposed a new option for affected and potentially-affected NHS staff – the initiative is called “50:50” (source: FT Advisor ). Whereas a scheme member’s full-time equivalent pensionable pay is now used to calculate contributions, members would instead be permitted to elect half of their current pension contributions. This reduction in contribution levels would result in the size of their pension pots not increasing as quickly allowing them greater headroom under the contribution limits. New Prime Minster Boris Johnson commented that "it cannot be right that so many GPs and consultants are leaving the service, or cutting their hours, for fear of whopping tax bills. It is clear that something has gone badly wrong in the taxation of doctors’ pensions. So this government is listening. We are fixing it." The British Medical Association however has argued that the 50:50 proposal will not have the desired effect – they believe that doctors will still cut their hours and that the only viable solution to the issue to the scrap the tapering of the allowance when a doctor’s full-time equivalent pensionable pay exceeds £150,000. Tax Advice The current crisis is leading to an exodus from the NHS Pensions Scheme at a rate five times higher than other publicly-run pension funds, reports FT Adviser . If you feel that you may have overpaid tax as a result of the changes to pensions law and the size of the contribution, please contact us. We have assisted individuals and businesses in their dealings with HMRC and are experts in representing our clients in complex and challenging cases. Please call 0113 387 5670 or email enquiries@forthsonline.co.uk for more information.