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 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 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. Remember, the onus will be on the individual to notify HMRC if you are liable for a tax charge.
For more information, please contact one of our advisers on 020 7636 7006.