GPs reminded to prepare for higher tax bill next year
As doctors pay their January 2017 tax bills today, accountants have warned that GP partners may face a higher tax bill next year.
The Association of Independent Specialist Medical Accountants (AISMA) has warned that the impact of changes to annual allowance - made last year - will be felt in 2018.
The annual allowance is the amount that a GP’s pension can increase in value each year before more income tax is charged. Previously, this figure was £40,000 for everyone. However, since April 2016, any GPs with taxable income over £110,000 and combined income plus growth in pension over £150,000 will have a reduced annual allowance on a sliding scale. This means the annual allowance is reduced to just £10,000 for highest earners.
The NHS pension scheme can pay some of this tax on your behalf, but there are limits.
Luke Bennett, AISMA committee member and partner at accountancy firm PKF Francis Clark, said: ‘By our reckoning one in ten GPs will be affected and the sums involved are pretty hefty. I have been warning some of my GP clients to expect additional tax charges of over £20,000.’
He added: ‘Normally when you pay more tax it’s because you’ve earned more money. But there will be no more money in GPs’ pockets to pay next year’s tax bill than there was this year.’
To avoid this hit, GPs will need a solution tailored to them.
Mr Bennett said that some clients are starting to save, some are lowering their income, and another option is ‘option of coming out of the NHS pension scheme or dipping in and out of the scheme and putting aside the contributions to pay the tax bill when it arrives’ although there is no ‘one size fits all’ solution.
As Pulse reported last year, older GPs are looking at ’alternative options’ because of changes to the tax treatment of pensions pots.