Like many doctors and dentists, you may have already started to think about your next tax return, but have you got all the information you need to complete it?
In a few weeks’ time, some NHS Pension Scheme members will receive a letter showing their annual allowance growth for the 2017/2018 tax year and earlier. It’s a timely reminder that you’ll need to refer to this letter when you do your next tax return.
You’ve never received an annual allowance letter so you’ve got nothing to worry about, right?
If only this were true. Unfortunately, the NHS assumes that everybody has the same standard annual allowance threshold of £40,000.
The reality is that, because of the complexities of the annual allowance rules, many higher earning medics have reduced annual allowance thresholds and, as such, could be facing an unexpected tax bill. Ongoing tax penalties for high earning medics >
Remember the NHS will not know your personal financial position, so it’s an impossible task for them to know your personal annual allowance threshold. Do not assume you have nothing to worry about if they haven’t sent you a letter!
Where on your tax return is the section about your annual allowance?
Under the Tax Reliefs section of your tax return it says, “If your contributions and other pension inputs are more than the annual allowance you should also fill in boxes 10, 11 and 12 on page AI 4 of the Additional Information pages.”
So what should you be doing now?
Get your annual allowance statement each year
Firstly, every year senior NHS doctors and dentists should ask the NHS Pensions Agency for their Annual Allowance statement for each of the NHS Pension Schemes they have been and/or are a member of. For example, if you have benefits in the 1995 and 2015 Schemes you need a statement for each, even if you don’t think you’re affected by the tapered annual allowance rules.
It may not all be doom and gloom when you get your statement. You never know, having the figures may flag opportunities for you to make additional tax-efficient contributions into your pension pot.
The NHS suggests a 12-week turnaround time from when you request your annual allowance figures, so it’s best to contact them in good time. However, if timescales are tight, they can usually provide you with your ‘pension input figures’ over the telephone by calling them on 0300 330 1346.
Check your NHS benefits are correct
Secondly, your NHS benefits to April 2018 should now be available online. Practitioners’ benefits should also now be updated for previous years.
It’s important to make sure that your benefits are correct. They’re used for a range of projections, including whether or not you’re likely to face future annual allowance issues.
If you haven’t yet checked what your latest NHS benefits are, you can do so by logging in or registering on the NHS Total Rewards Statement website.
Forewarned is forearmed
If you are going to get an annual allowance tax bill, you may have options to pay it. For example, in some circumstances, the NHS can pay some of your tax bill on your behalf. There are deadlines for this so again, the sooner you check the better. Paying your unexpected pension tax bill: Your options >
Is it really all that complicated?
Anybody who says it’s not that difficult for a medic to work out if they’re due a bigger than expected tax bill is being economical with the truth!
Personally, I have some strong words I’d like to say to the person who devised the current set of rules – not only are they too elaborate, they also penalise those whose pension is deemed to be increasing too quickly.
NHS doctors and dentists would be wise to seek professional advice from those who have a solid understanding of both the complexities of the annual allowance rules and the various NHS Pension Schemes, old and new.
Such specialists will be able to determine what tax and retirement planning opportunities and/or safeguarding defences you should at least consider.
Do you know if you’ll be facing an unexpected tax bill simply because your annual allowance is less than the NHS think it is? Let us know by adding a comment below.