The Chancellor’s recent Spring Budget announced the reform of the taxation of pensions in a bid to try to avoid the large potential tax charges arising on doctors’ pension contributions.
This article provides a summary of the changes announced and other current issues.
Annual Allowance Charges
The Chancellor announced that the annual allowance for pensions will increase from £40,000 to £60,000, in a bid to try and retain medical professionals in work rather than seeing them retire early. This will ensure that most medical professionals should no longer have an annual allowance charge going forward. It should be noted that for the NHS Pension contributions could still be affected particularly as the last few years would have used any available unused relief from earlier years.
Those with earnings over £260,000 (increased from £240,000) will start to have the pensions allowance tapered. Currently this could be tapered down to only £4,000, but this will be increased to £10,000. The changes come in from 6 April 2023 so for 2022/23 the annual allowance remains at the £40,000, however there have been changes in how the Annual Allowance growth is calculated to alleviate the effects of inflation as discussed in the new flexibilities section below.
It was rumoured prior to the Budget that the lifetime allowance would be increased to £1.8 million from the current £1.073 million, however, the Chancellor decided to remove the Lifetime Allowance charge from April 2023, before the allowance is abolished entirely from April 2024. Accordingly, there should be no issues with Lifetime Allowance Tax charges in the future, although the Labour Party have indicated they would seek to reverse this should they be elected. It should be noted that the maximum tax-free lump sum remains at 25% of the current lifetime allowance i.e. £268,275 (unless an individual has previous protection at a higher level).
Money Purchase Annual Allowance
The money purchase annual allowance will be increased from the current £4,000 to £10,000. This is the annual allowance for those who have taken pension benefits but wish to contribute further to pension schemes after taking from their pension.
A few days before the budget the Government announced that following consultation it had agreed to make changes to the NHS Pension scheme. These changes were in the following areas:
- From 1 April 2023 employees who have taken their pension from the 1995 scheme will be able to join the 2015 scheme and build up further pension.
- From 1 October 2023 members of the 1995 scheme will be able to take some or all of their pension while continuing to work for the NHS. Before this, to take the pension, the member had to leave NHS employment. This provides a more flexible arrangement than the previous ‘retire and return’ procedure.
- Removal of the 16 hour rule whereby an employee was restricted to the hours which could be worked in the month following a return to work
- Annual allowance calculations will be amended to exclude pension growth caused by rapidly rising inflation. For 2022/23 onwards, the rate of inflation used in the annual allowance calculations will be aligned with that used for the revaluation of scheme benefits which therefore ensures the annual allowance calculations only measure pension growth that occurs above the rate of inflation.
Change in basis periods
It was thought there was a possibility that as Making Tax Digital had been delayed then the change of basis period may also be delayed. However, there has been nothing said to delay this, so from 2024/25 for partnerships and the self-employed profits will be assessed on the tax year rather than the accounting period ending in the tax year, with 2023/24 being a transitional year. This will primarily affect GP partnerships with a non 31 March/5 April year end as most individual doctors already are taxed on profits for the tax year. The change of basis for those affected will almost certainly give rise to tax and superannuation catch up charges to be spread over the next five years.
The Budget also made changes in the VAT which can affect medical professionals:
- The government will extend the zero rate on prescriptions to medicines supplied through Patient Group Directions. The proposed change would reduce costs for the NHS, ensure the tax system keeps pace with changes to healthcare delivery, and is in line with the government’s commitment to ease pressure on GP services.
- The government will extend the VAT exemption on healthcare to include medical services carried out by staff directly supervised by registered pharmacists. This simplification will take effect from 1 May 2023. It will ensure the VAT system keeps up with changes to how the NHS operates and is in line with the government’s commitment to ease pressure on GP services.
Disclosure of GP earnings
The implementation of the general pay transparency regulations has previously been delayed twice but will now come into effect in April 2023 with the 21/22 NHS earnings. Under these regulations, partners, salaried GPs and locums who have NHS pay (effectively pensionable earnings) over £156,000 for 21/22 are currently required to make a self-declaration of their earnings by 30 April 2023. Failure to make the declaration would lead to the practice concerned being deemed to be in breach of contract. This is an additional requirement to the publication of net earnings by GP Practices on their websites which has been in place for some years.
Should you have any queries or need further advice on these please do not hesitate to contact us, although questions regarding whether you should re-join the pension scheme would count as investment advice and will need to be dealt with by an IFA specialising in the NHS Pension Scheme.
This article is a general briefing therefore you should take specific advice before acting on any of the above. Please contact us on 01242 776000 or email your usual contact if you are an existing client. otherwise please use the Contact Us form and we will direct your enquiry accordingly.