NHS 19/20 scheme pays
Members of staff who are UK taxpayers in the tax year 2019-20 will receive tax relief on pension contributions of up to 100% of their earnings or a £40,000 annual allowance (AA), whichever is lower. However, HMRC introduced a lower annual allowance for individuals with higher incomes, which applied from the tax year 2016-17 onwards. HMRC describes this as ‘tapering’. A tapering calculation needs to be carried out once ‘threshold income’ reaches £110,000 and applies on ‘adjusted income’ of over £150,000 from in the year to 5 April 2020.
The effect of the taper is to reduce the AA as taxable salary increases. The AA is reduced by £1 for every £2 of adjusted income above £150,000, down to a minimum AA of £10,000.
As a result of the impact on frontline services the Government has announced changes to the rules for pension contribution tax relief from April 2020, but this is not retrospective and lower limits still apply to the 2019/20 tax year.
To mitigate the impact on services, and to reassure clinical staff that they would not be financially worse off for working extra hours, NHS England and employers have promised to compensate eligible clinicians who have incurred an Annual Allowance tax and wish to pay this using Scheme Pays. Scheme Pays allows you to ask the NHS Pension scheme to pay any tax charge due to Annual Allowance to HMRC in exchange for a reduced pension on retirement.
This debit arising from 19/20 scheme pays only will be added back to your pension at retirement. Importantly you can only use this arrangement to cover AA tax arising from normal pensions accrual from the 1995/2008/2015 schemes. It specifically excludes input from AVC’s and from savings outside the NHS scheme.
The deadline to apply for Scheme Pays for 19/20 is 31 July 2021. In order to apply you will need to complete an application form and return to the NHS Pension Scheme.
Additionally, if you wish to apply for compensation you will need to complete a second form and send it to pensions to have authorised. Please ensure that your use the Word version of the form, so that others can edit and add to the form and return it to you authorised. Please also include the amount of your tax charge you wish to have paid in the accompanying email. Once authorised we will return this form to you along with a letter that confirms that this arrangement will amount to a variation in your contract of employment. A template of this letter can be read here. You must make sure you send your completed compensation application form to the NHS by 31 March 2022.
Further information and FAQ’s can be found here.