Pensions rethink delivers five-figure cashflow boost for GPs

Thousands of GPs will no longer have to find up to five-figure sums to pay tax bills on pensions every January after a change in NHS pension scheme rules.

Pensions change (Photo: iStock)
Pensions change (Photo: iStock)

Accountants say as many as one in five GPs could benefit from changes that mean doctors can choose for tax charges on their full annual allowance to be paid by the NHS scheme.

Some GPs have been left in tears in previous years after being told they would have to find huge sums of cash to cover tax on their pension - at a time when practice workload is soaring and cashflow is already under strain. GP leaders warn the 'rigid' rules forced some doctors to turn down extra work - and in extreme cases to quit the profession entirely.

The standard annual pensions allowance for the 2016/17 tax year - the amount up to which tax relief applies - was £40,000, although for anyone earning more than £110,000 this is 'tapered' to £10,000.

Pensions tax

In 2016/17, GPs in the NHS pension scheme could ask for tax on any excess over the standard allowance of £40,000 to be paid from funds they have paid into the scheme rather than having to pay this from their own pockets. But any tax below this threshold could not be paid from the pension scheme.

For GPs earning more than £110,000, with their annual allowance tapered to £10,000, this meant having to find cash to cover tax on £30,000 - the difference between the tapered allowance and the standard allowance. Pension rules mean allowances can be rolled over - but doctors with no unused allowances to roll over would have to stump up 45% tax on this sum, or £13,500.

Doctors paying their 2017/18 tax bills next January, however, will be able to ask for tax on pensions to be covered in full by the scheme if they don't have the funds available to pay the bill directly.

Andrew Pow, a director at accountancy firm Hall Liddy and at the Association of Independent Specialist Medical Accountants (AISMA) told GPonline: 'We have had people in tears, telling them they have to find a five-figure sum in January - where from?

Cashflow

'Finding that is tough. Now you will be able to get the scheme to pay. That means it comes off your pension, but from a cashflow point of view it means GPs will not have to pay out of their own pockets.'

AISMA representative David Walker, a tax adviser at accountancy firm MHA Moore & Smalley, said: 'The change in the rules will alleviate the immediate cashflow worries of doctors facing many thousands of pounds in extra tax charges.'

He added: 'Doctors who elect for the scheme to pay the tax should understand that there will be a larger reduction in final benefits paid by the pension scheme.'

He urged doctors to take financial advice from a specialist accountant before making decisions about when making decisions on what proportion of their tax should be paid by the pensions scheme.

Rule change

In a letter to BMA chair Dr Chaand Nagpaul earlier this year, health and social care secretary Matt Hancock set out plans to introduce the change.

He wrote: 'One issue that you have raised that I can progress is the problem experienced by doctors who are subject to tax charges as a result of the tapering annual allowance, as the NHS Pension Scheme currently does not offer the "scheme pays" facility for this group. I can confirm that we have asked the Business Services Authority that administers the pension scheme to introduce this facility as soon as possible.'

GPC chair Dr Richard Vautrey said: 'Doctors were being forced to pay out large amounts of money each year, often unexpectedly, and in turn were considering pulling out of the pensions scheme. In the very worst cases, this meant doctors may have chosen to leave the profession altogether.

'We are glad that the NHS pension scheme has agreed to extend the "scheme pays" facility to members who exceed the tapered annual allowance.

'While this will not solve the recruitment and retention crisis in general practice alone, extra flexibility around these rules is a welcome step and an important change for our members.'

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