Doctors could be hit with unexpected tax bills next month as three quarters admit they do not understand the different pension savings limits and tax rules.
A survey by advice firm Wesleyan found that out of 536 doctors, 75 per cent did not understand the rules surrounding the annual and lifetime allowance limits on pension savings.
Meanwhile, nearly a third (31 per cent) did not know which section of the NHS Pension Scheme they were in, which could affect their retirement age, pension earnings accrual and retirement income.
This is concerning as doctors - whose annual increase in pension benefits amounts to more than £40,000 - will be liable for a large tax charge and must declare the information via a self-assessment tax return before January 31.
However, while HM Revenue & Customs has encouraged individuals to meet this deadline, it announced today (January 25) that it would not charge a late filing penalty if the return is submitted online by February 28.
But taxpayers are still obliged to pay their bill by the January deadline, with interest charged from February 1 on any outstanding liabilities.
Wesleyan has urged clinicians to take the necessary steps ahead of the deadline to avoid any unwanted charges.
David Noon, head of medical division at Wesleyan, said: “Annual allowance remains a complex component of defined benefit schemes like the NHS Pension Scheme but it is still alarming that doctors remain unaware of what this means for their tax obligations.
“For clinicians with complex tax affairs, the charges can be hard to swallow, with some being forced to take on significant debts to settle the outstanding bill.”
Both the annual allowance and tapered annual allowance have created a raft of issues for senior NHS staff over the past couple of years.
The taper gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
The rules have forced senior clinicians and other high earning public sector workers to either leave their pension scheme, cut down on their working hours or retire early to avoid punitive tax bills.
While the Budget in March 2020 lifted the ‘adjusted income’ and ‘threshold income’ levels under the tapered annual allowance by £90,000 for the 2020-21 tax year, there are still doctors affected by the charge, including those who are taking on extra shifts due to the pandemic.
Mr Noon said: “It is now more important than ever that doctors remain aware of their tax liabilities and submit the necessary information before the self-assessment deadline at the end of January to avoid being penalised further which in the current climate would seem a harsh reality considering the fantastic work they’re doing supporting our country’s health needs.”
Wesleyan said although the government’s introduction of the 2019-20 annual allowance charge compensation scheme goes some way to alleviate the tax burden, members still need to notify HMRC of any charges by January 31 and complete a subsequent scheme pays election form by July 31.