Are you paying too much tax?

Many of you will be aware that in Scotland we pay higher rates of tax than the rest of the UK, but there is a little stealth tax appearing on the horizon which everyone needs to be aware of.

On your NHS schedule of payments you will see your superannuation contributions ( shown on account 7). These add up over the year to what you think contributes to your pension – its not quite that simple. How the government calculate the amount that is added to your pension year after year is a formula based on the growth of the pension, contribution levels and CPI (consumer prices index). This figure which is available from SPPA is REALLY important and I would urge all of you to contact SPPA (Scottish Public Pensions Authority) and ask for your pensions savings statement for 17/18. It is called your Pension Input Amount (PIA).

As a practitioner and contributing to the NHS pension scheme ( often called the NHS superannuation scheme) you may be part of two schemes; the 1995/2008 scheme and the 2015 scheme . What is important is that SPPA will provide you with your annual PIA for each scheme that you are part of and you must add these together to get your total PIA for the year. The information that you require from SPPA is the ANNUAL ALLOWANCE PENSIONS SAVINGS STATEMENT.

If this figure over £40000 you may well be over the annual allowance for tax relief on pension contributions. This allowance is currently £40000 and was not changed in this years budget. It is vital that your accountant or advisor is aware of this and informs you of your position with regards to pensions and the superannuation scheme. Ignorance will not protect you from the tax charge in the future. Essentially if you are over the annual allowance limit you will not be eligible for tax relief on the amount over the limit in any given year.

Assuming you haven’t glazed over and moved on to the next interesting article, I will give some further information relevant to this omnishambles of a tax and pension system we have

The annual £40000 allowance (AA) applies to all pension schemes so eg if you have a SIPP (self invested pension plan) or other pension plan in addition to the NHS superannuation scheme this allowance applies to all plans and schemes. The total allowance for the current year across all pension schemes is £40000

If you are fortunate enough to have a total (not just dental, but total taxable income) taxable income of >£150000  pa then your annual allowance reduces by £1 for every £2 over the £150000 limit. This means by the time one gets to £210000 the effective AA is £10000

In order to complicate the matter further the Treasury have produced details of what is termed threshold income and adjusted income for the purposes of pensions and annual allowance. As there is probably no one left reading this, its best you ensure that your advisers are aware of this

What to do? Educate yourself and speak to an advisor. Your pension saving information should feature in your tax returns.  The most important thing is to get the information from SPPA and there is a very useful pensions tax calculator on the HMRC website which will give you an idea of your position:

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

If you haven’t registered with SPPA for their online service, here is the link:

 http://www.sppa.gov.uk/index.php?option=com_content&view=article&id=724&Itemid=1441

 It is possible to opt out of the superannuation scheme, thereby reducing your pension contributions and opt back in  – the pension hokey cokey.  This could reduce your pension entitlement and thereby your likelihood of breaching the Annual Allowance.  However opting out of pension contributions means that as well as lower pension savings,  you would have a much lower level of death benefit, and less favourable benefits available if you had to retire early on health grounds.  

The BDA can also offer excellent guidance on the NHS pension schemes and we are fortunate that the BDA pensions advisor Phil McEvoy will be speaking at LDC conference this year.

Please note that this article does not constitute any advice but it is merely an overview of the current tax and pension position

David McColl

Vice Chair GGC LDC

Chair Scottish Dental Practice Committee

Glasgow Outline