Tax chiefs have agreed to further extend deadlines for individuals who want to use their pension scheme to settle annual allowance charges from a previous tax year, in a move described as ‘good news’ for NHS doctors.
There were fears that a lack of clarity around the system combined with out-of-date or even lost information could see GPs miss out on reclaiming their pension tax charges with some facing the possibility of losing ‘thousands or potentially tens of thousands of pounds’.
But HMRC today announced it was extending the reporting and payment deadlines for ‘scheme pays’ arrangements.
This means pension schemes will now pay the charge if it arises because of a retrospective change of facts, the charge is £2,000 or more or an individual asks the scheme to pay it within the new deadlines.
It will also extend the deadline for when the scheme administrator must report and pay the annual allowance charge, so the deadline for paying the charge relates to when the scheme administrator is notified of the charge, rather than a fixed period after the end of the tax year.
The measure will apply to all individuals within scope of a retrospective annual allowance tax charge of £2,000 or more and who meet the conditions to qualify to use scheme pays, and will not be limited to those affected by the age discrimination found in the 2015 public service pension reforms.
The revised scheme, which will now take effect from 6 April 2022 but will be retrospective from 6 April 2016, has been welcomed by Graham Crossley, an NHS pension specialist at wealth management firm Quilter.
Mr Crossley said: ‘Mandatory scheme pays allows savers to settle annual allowance tax charges of more than £2,000 through the pension fund without needing to find cash up-front.
‘This is particularly helpful for the likes of NHS doctors where there is a legacy of annual allowance issues.
‘The measure introduced today to extend the information and notice deadlines for individuals to ask their pension scheme to settle their annual allowance charge from a previous tax year is good news as it extends the deadline for Mandatory Scheme Pays where amendments are made by the scheme administrator.
‘Following the recent McCloud remediation measures, there may be a number of cases where an individual’s pension growth will be higher retrospectively.
‘Today’s measure will allow Mandatory Scheme Pays to be used to help individuals who have worked tirelessly on the frontline of the pandemic.
‘The deadline has been extended to three months after notification or six years after the end of the tax year, so it includes all tax years since 2016/17.’
GPs facing a tax charge over the pension savings annual allowance threshold can settle up through the NHS pension scheme by filling in and returning a scheme pays election and a compensation form.
To access the compensation, GPs will use the scheme pays arrangement already available to NHS pension scheme members, which usually allows tax charges to be deferred until retirement.
The Government made the compensation available in 2019 so clinicians could take on more shifts or sessions without worrying about an annual allowance charge on their pensions.
The annual allowance was introduced to limit the amount of UK tax relieved pension saving an individual can benefit from in a tax year.
Initially set at £215,000, it increased to £255,000 for 2010 to 2011. The annual allowance was reduced to £40,000 for tax year 2014 to 2015 onwards.
This reduction was accompanied by the introduction of ‘carry forward’ and ‘scheme pays’, both help an individual to meet larger annual allowance charge liabilities in the current tax year that might arise due to the reduction.
Scheme pays is where, in certain circumstances, the individual has elected for the pension scheme administrator to be jointly liable for the annual allowance charge of at least £2,000 in relation to that scheme, in return for an actuarial equivalent reduction in the value of their pension pot.
GP Survival chair Dr John Hughes had previously warned information on GP pensions was often ‘18 months to two years behind reality’, meaning some GPs don’t have access to real-time information.
Dr Hughes gave a guarded welcome to the latest HMRC announcement but said the move still failed to tackle the ongoing problem of individuals who may not know they have breached the threshold for two or three years.
He told Pulse: ‘This will help to some extent and it is better than nothing but it doesn’t really address the issue for people who access their total rewards statement to find that it is grossly out of date.
‘It is very difficult to apply for a reimbursement when you don’t actually have the data on what you have paid, and whether that’s potentially breaching a threshold or not.
‘By the time most GPs find out what is going on with their pension payments, it’s too late for any of these windows.’