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Pension Annual Allowance Tax Charges for GP Partners

The pension relief tax legislation is extremely complicated when it comes to pension annual allowance tax charges for GP Partners. Here is some guidance on the annual allowance charge and how we can help you.

For tax relief purposes in any year, you need to know:

  • The amount of pension contributions actually paid in the year together with any overpayment of contributions in relation to that year, even if refunded in a later year
  • Your taxable income for the year
  • Your ‘pension input’ for the year.

Complicating Factors

The system has a number of complications:

  1. Whilst you might obtain the first two easily, the ‘pension input’ is required to calculate your taxable income but that pension input figure will not be provided by the Pensions Agency until after the tax return has been submitted!
  2. Submitting a tax return without a calculating your pension position can lead to an incorrect submission and result in an HMRC penalty.
  3. There is also a time limit on electing for Scheme Pay, whereby the tax liability comes from your pension pot rather your own pocket. So a complex calculation of whether you have a charge is required.

Our Guidance

Each year, you should obtain a Total Rewards Statement online, firstly to ensure that your pension record is being updated correctly, but also because we will need this statement for the annual allowance charge calculation if you would like us to help you.

The latest complexity comes from the requirement to reduce the amount of eligible relief for ‘high’ earners. Thus, if you have taxable income (net of pension contributions) in excess of £110,000 and gross adjusted income over £150,000, then the £40,000 limit of tax deductible contributions reduces to as low as £10,000.  The result can be a very high annual allowance charge.

A common misconception is that you can ‘scheme pay’ the tax liability that arises. Whilst you can scheme pay the charge arising on pension inputs exceeding £40,000 (provided the tax due on it is greater than £2,000), you cannot scheme pay the tax arising on the band of reduced annual allowance.  Hence, if your income leaves you with only an allowance of only £10,000, you could have to pay tax of £30,000 at your marginal rate of tax (probably 40% or 45%).  Your tax payments on account will increase too.

How We Can Help

We can provide assistance with your pension annual allowance tax charge calculations. To handle the calculations and make sure you benefit fully from available pension relief, we will need you to:

  • Obtain an updated Total Rewards Statement annually and let us have a copy.
  • Authorize us to deal directly with NHS Pensions if necessary.
  • Promptly pass to us any ‘Pension Savings Statements’ you receive.
  • Allow us to prepare your accounts and tax returns as early as possible.
  • Get specialist pension advice. We can put you in touch with an adviser who understands the NHS Pension Scheme.

For more information on how we can support GP Partners with pension Annual Allowance tax, please contact Ken Craig and the team at Rawlinsons on 01733 568321.