STOP PRESS: NHS England will pay Doctors’ Annual Allowance Tax Charges for 2019/20
22.11.2019 , BY Jenny Stone
22.11.2019 , BY Jenny Stone
NHS England have confirmed that they will pay doctors' annual allowance tax charge for 2019/20.
GPs and doctors who have opted out of the NHS Pension Scheme to try and reduce their annual allowance tax charge may want to consider rejoining the NHS as any tax charge arising from exceeding their annual allowance in 2019/20 will be paid for by your NHS Employer.
There has been growing pressure on the Government to deal with the work force crisis in the NHS that has resulted from hospital doctors and GPs deciding to work less due to the additional tax charge as a result of exceeding the annual allowance. There are proposals to bring in pension flexibilities from April 2020 where members of the NHS Pension Scheme can choose how much of their income to pension, but it will be up to a new Government to decide on the approach. However due to the winter pressure on the NHS and increased waiting times, NHS England have had to take exceptional action.
It has been confirmed that clinicians who exceed their NHS Pension annual allowance in 2019/20 resulting in a tax liability will be able to choose “Scheme Pays” but their NHS Employer will compensate them fully at retirement for the effect of the scheme pay election meaning that they would not be out of pocket as a result of the tax charge for 2019/20.
If a GP has an annual allowance tax charge and elects for "Scheme Pays” where NHS Pensions pay the tax charge as opposed to them, their pension would be reduced at retirement. By electing for “Scheme Pays” NHS Pensions is effectively making you a loan which will not be recovered until you take your pension. Interest is charged on the tax amount paid on your behalf and then it is recovered from your pension when you take your benefits.
This exceptional announcement means for 2019/20 ONLY, your NHS employer will fully compensate you at retirement for the "Scheme Pays" election.
However, in the frequently asked questions issued by NHS England, they refer to the compensation being treated as salary and so it would be taxable at retirement.
It is not clear how this will work for GPs and dentists as you are not NHS employees directly. This proposal is available to GPs, but we will need to wait for the details on how this will be implemented, but the intention is that GPs and dentists should not be out of pocket as a result of the annual allowance tax charge for 2019/20.
We have many clients who have opted out of the NHS Pension Scheme or have been opting in and out during the year to try and reduce their exposure to the annual allowance tax charge. Therefore, if you are going to be compensated for the annual allowance tax charge for 2019/20 you may want to consider opting back in. However, we would advise you to take independent financial advice.
If you are employed, you would need to inform your employer you wish to opt back in to the NHS Pension so they can start making superannuation deductions.
If you are a GP partner, you will need to inform the PCSE via their online portal that you wish to opt back into the NHS Pension Scheme. Please ensure that you or your practice manager review
s the monthly NHSE Statements to ensure that your superannuation deductions have started again, if not, the PCSE will need to be chased to ensure you are opted back in for 2019/20.
Simon Stevens letter to the profession and frequently asked questions can be found at: https://www.england.nhs.uk/pensions/
This announcement only applies to 2019/20so GPs who have large annual allowance tax charges for 2018/19 will still need to pay the tax by 31st January 2020 or choose "Scheme Pays" and the tax charge will reduce your pension at retirement.