Simon Bruce on the reward that could become a tax headache
Doctors who have recently received a Clinical Excellence Award tell us that the recognition is worth more than any financial reward. However, finding out that this can also prove to be a substantial tax burden comes as a real surprise.
If you receive a CEA, your pensionable pay increases, which could force you to breach the annual allowance – the total amount which your pension can increase by each year while still attracting income tax relief.
The annual allowance was cut to just £40,000 per annum in April 2014. Many senior doctors can find they breach this figure just by being in the scheme for another year, even before a new CEA or contractual pay increment are considered. In addition, from April 2016 those who are deemed to have total income of £150,000 face an annual allowance, which is reduced further by £1 for every £2 over this.
Note that total income is not just salary, it includes dividends, NHS pension contributions and other income from rental properties etc. For most senior doctors this means an annual allowance of just £10,000. The result is that excesses above the annual allowance are considered in the same way as income and taxed at your highest marginal rate.
Your new CEA will be backdated to April 2016. Unfortunately, this usually means you only find you are liable for a tax charge long after the tax year is finished. The NHS Pensions Agency will not write to those breaching the annual allowance cap until summer 2017 – and sadly little can then be done retrospectively. Remember also that the NHS has no record of your other income. It is entirely possible that you do not even receive a statement from the NHS even though you are technically in breach.
If you are not confident of your own position you should seek help without delay – the onus will be on the individual to notify HMRC if you are liable for a tax charge.
Simon Bruce is CEO of Cavendish Medical – specialist financial planners for senior medical professionals in the NHS or private practice. For a second opinion on your finances, please contact us on 020 7636 7006.
www.cavendishmedical.com
The content of this article is for information only and must not be considered as financial advice. Cavendish Medical always recommends that you seek independent financial advice before making any financial decisions. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of investments and the income from them can fluctuate and investors may get back less than the amount invested.
