I’m afraid I’m not writing to tell you I can make your annual allowance tax liability disappear, but I do have good tidings for all our medics…The voluntary ‘scheme pays’ election deadline has been extended by three months!
Don’t get your deadlines muddled
One key thing to remember is this is just an extension for the VOLUNTARY scheme pays election, not the MANDATORY scheme pays system. The deadline for mandatory scheme pays remains as 31 July.
Can’t remember what ‘scheme pays’ is?
In short, you can ask NHS Pensions to pay some or all of your tax liability charge in return for an appropriate reduction to your NHS benefits. You could call it a ‘loan’ to yourself so you can pay your annual allowance charge, which you then repay back later with interest.
Interest is added to the account each year from 01 January following the ‘loan’. Interest is based on the previous September’s Consumer Price Index (CPI) figure, plus the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate (a bit of a mouthful). The SCAPE discount rate changed from 3% to 2.8% on 16 March 2016 and was reduced further to 2.4% from 1 April 2019.
What’s the difference between mandatory and voluntary scheme pays?
Mandatory Scheme pays
To qualify for the mandatory scheme pays certain criteria must be met.
Firstly, the standard annual allowance of £40,000 must have been exceeded. If the charge has arisen because of the tapered annual allowance you wouldn’t qualify.
Secondly, the amount of the annual allowance charge must have exceeded £2,000, and again this must be due to the full £40,000 annual allowance, not the tapered annual allowance.
The liability for the charge is seen as the joint responsibility of the NHS Pension scheme and the member.
Voluntary scheme pays
The qualifying criteria are more relaxed for voluntary scheme pays. Any annual allowance charge can be paid. Even if it has come about due to a tapered annual allowance, as 2017/18 the voluntary scheme pays facility was extended to include members subject to an annual allowance lower than the standard annual allowance of £40,000. The liability for the charge is solely owned by the member.
So what’s changed?
The normal deadline for making the election for voluntary scheme pays is 31 July but has been extended until 31 October to allow more time during the COVID-19 pandemic. The deadline relates to annual allowance charges for tax year 2018/19.
If you had intended to use scheme pays you will have already declared an annual allowance charge in your tax returns (The deadline for this was 31 January 2020). However, some of you will have completed these with estimated figures. The extension gives more time to make sure figures are correct before making the election for scheme pays.
Keep a lookout as this deadline will be reviewed again in July.
In these times of huge financial and overall stress, this little bit of breathing space may be a godsend for some. As always, if you are concerned about your position regarding your annual allowance please contact your Legal and Medical advisor.
Do you think the scheme pays deadline extension will help, and will you delay payment? Let us know by adding a comment below.