Exclusive Some GPs are wrongly facing tax demands of up to £17,000 due to miscalculations made by the NHS pensions authorities, medical accountants have warned.
Hundreds of GPs are thought to have been affected by errors in provisional pension savings statements, with many facing incorrect tax demands and others likely to be unaware that they face a significant tax liability.
The miscalculations have come about because of a Government change to tax relief in 2011/12, which cut the tax-free pension contributions that individuals were able to make from £250,000 to £50,000.
Over the past two months NHS Pensions, part of the NHS Business Services Authority, has begun sending statements to members of the NHS pension scheme who it believes exceeded the £50,000 cap in the 2011/12 financial year. These statements will be sent on to HM Revenue & Customs, which will charge retrospective tax on the excess contributions identified.
But medical accountants told Pulse they believed as many as 20% of the statements issued by the pension authority could contain errors, with some of their GP clients overcharged and others who were expecting to face charges yet to receive statements.
GPs have the choice to pay any tax liabilities out of their pensions fund, or pay the bill upfront. However if they choose to pay the bill out of the pension fund, they must do by 31 December.
Keith Taylor, head of medical services at BW Medical Accountants, said many of his clients had received statements in the past six to eight weeks.
‘When we have looked at the figures that they are quoting there is a high volume of errors. There are also instances where we know of clients who have severely breached [the £50,000 limit] and they have not been informed by the pension authority.’
‘The consequence is they only have until 31 December to notify the pension scheme whether they want the scheme to pay any tax liabilities on their behalf or whether they write the cheque out themselves. If they miss the deadline, the rules and regulations as they stand at the moment are they will not accept any late applications for them to pay the tax [out of their pension scheme].’
Mr Taylor said one of his GP clients had been incorrectly told they owed £17,000 in tax.
‘When we did the numbers he did not have any liability, so without the professional advice this guy could have written a cheque out for £17,000 and sent it to HMRC,’ he said. ‘Now he doesn’t have to pay a penny.’
Bob Senior, chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly, said many of the errors in statements appeared to have arisen as a result of GPs deciding to stop paying top-up payments for ‘added years’, the system whereby long-standing members of the NHS Pension Scheme could pay extra contributions if they were not planning to stay in the scheme for a full 40 years.
‘They can’t cope with people who have stopped paying for added years,’ Mr Senior said. ‘Some people saw this coming and stopped paying for added years and this has caused mayhem. A number I heard was that probably 20% of statements were not correct. Anyone who stopped their added years contract – all those statements that I have seen have been wrong.’
Mr Senior said that ‘probably less than 5% of GPs’ would actually end up with a tax liability, but added: ‘For some of those it would be a significant amount. For those GPs that are affected, this can be a big problem. The vast majority of GPs would have enough allowance, but if you were over 48 – and especially if you were paying added years, or were also paying into a private pension scheme – you would likely be facing a tax liability.’
He added: ‘The figures the pensions agency are coming up with will eventually be fed through to HMRC. There will be some who will get a very nasty wake-up call.’
A spokesperson for NHS Pensions said that the body has issued over 18,000 provisional pension savings statements to members affected by the reduced annual allowance for 2011/12 and 2012/13 since early October, and had had an enquiry rate of 7% to date.
‘Since October we have talked a number of people through their statements and explained the calculations behind them,’ he said. ‘Hopefully this has clarified the position for some practitioners and enabled them to understand their statements more clearly. Final 2011/12 statements will be issued to the vast majority of practitioners this week.
‘This is the first time that NHS Pensions have administrated the annual allowance at the reduced level of £50,000 and we have invested a lot of time and effort to ensure that the financial information provided has been thoroughly checked and assessed. We introduced a two stage – provisional and final – process which has hopefully enabled any specific queries, errors or corrections to be addressed and, where required, enable amendments to be made to the final statements.’