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Pay up now for pension tax break

GPs are being advised to pay thousands of pounds in pension top-up payments before April to take advantage of tax breaks.

By Ian Cameron

Principals face top-ups of up to £15,000 for work done in 2004/5 as a result of a crossover between the Red Book and new contract.

While more work became pensionable under the contract, superannuation deductions continued to be based on Red Book rules.

Balancing payments are automatically deducted by PCOs after the financial year begins in April.

But medical accountants have urged practices to make the payments before the end of the financial year in order to claim tax relief in the current year and reduce their tax bill next January.

Paying a shortfall of £7,000 in March 2006 could cut the January 2007 tax bill by £4,200.

If GPs waited for PCTs to deduct the money, they would not get a credit against their tax bill until January 2008.

Arthur Dixon, senior manager, private clients, at Deloitte & Touche in Newastle-upon-Tyne, said practices should check with their PCT how to make an early payment ­ but this could be as simple as writing a cheque and sending a letter.

He added that top-ups were between £1,000 and £4,000 among his GP clients.

'We haven't been told when to pay but are suggesting where there's any shortfall GPs pay it voluntarily before the end of the tax year,' he said.

Paul Samrah, a partner at Kingston Smith, based at Redhill, Surrey, said shortfalls rang-ed from £2,000 to £8,000 and had surprised his GP clients.

Meeting the payments could mean partners needed to reduce their drawings for a couple of months, he said.

Rosemary Smith, GP liaison manager at Sandison Easson in Wilmslow, Cheshire, said top-ups among her GP clients were routinely £6,000 or £7,000.

However, one dispensing practice had a £15,000 shortfall per partner.

Dr Andrew Dearden, chair of the BMA's pensions committee, agreed pensions shortfalls should be made up early to take advantage of tax breaks.

'Pay it as quickly as possible so it's allocated as quickly as possible,' he said.

Dr David Bevan, a GP in Upwell, Cambridgeshire, said GPs accepted their pay rise would be accompanied by bigger tax and pension costs, but added: 'It essentially wipes out the pay rise in cash terms.'

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