Hospital doctors and GPs are lobbying the Government to amend the pension tax rules as the current system of restricting tax relief on pension contributions means many doctors paying almost all of the extra salary back in tax if they take on additional responsibilities or work additional shifts. This is an issue that doesn’t just affect doctors as it potentially restricts the tax relief available to other individuals with high income.
The NHS Pension Service have alerted members of the NHS Pension Scheme that they could receive a tax bill if their pension savings exceed limits set by HM Revenue and Customs (HMRC). These limits are known as the annual allowance, which is calculated each year, and the lifetime allowance, which is calculated based on overall pension savings.
The normal annual pension allowance is currently £40,000 each tax year and limits the amount of pension contributions which qualify for tax relief. The limit covers the combined contributions paid by the taxpayer and their employer. A tapered annual allowance was introduced in April 2016 with the intention of reducing pension tax relief for high earners.
It applies to those with adjusted incomes of over £150,000 and threshold income in excess of £110,000. The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000 at £210,000. This is a complex calculation and advice should be obtained to minimise the impact of the rules as the individual is taxable on the excess pension contributions over the annual limit.
Gifts and awards of shares in companies, often known as employment related securities (ERS) are commonly used by employers to reward, retain or provide incentives to employees. They can be tax advantaged or non-tax advantaged.
You must notify HMRC of all new ERS schemes including one-off awards or gifts of shares by 6 July following the end of the tax year in question or you may have to pay a penalty.
Once you have registered the share scheme you need to submit an ERS return (or nil return) even if there have been no transactions in the year otherwise the company may be liable to a penalty.
You should obtain assistance dealing with these reporting obligations if required.
The Pension Annual Allowance tax charge depends on the individual’s marginal rate of tax. Where their income exceeds £150,000 it would be at 45%. Thus if the pension input for 2018/19 Was £40,000 and the limit is tapered to £10,000 the excess of £30,000 would incur a £13,500 tax bill on top of their normal tax liability.
You can ask your pension provider to pay HMRC out of your pension fund if you have gone over your annual allowance and the additional tax is more than £2,000. The deadline is 31 July 2020 for the 2018/19 tax year.
The latest Finance Act has reduced the tax writing down allowance for motor cars that emit more than 110 grams of CO2 to just 6% on a reducing balance basis from April 2019. In the case of company cars the vehicle is included in the “special rate” pool which means that even when the car is sold the proceeds are deducted from the pool and the 6% allowance continues until the balance is written off. It may be more advantageous to lease such a vehicle so worth obtaining advice.
Employers need to submit details of benefits in kind provided to directors and employees by 6 July 2019. Remember that reimbursed expenses no longer need to be reported where they are incurred wholly, exclusively and necessarily in the performance of the employee’s duties. Dispensations from reporting are no longer required.
Remember also that trivial benefits of no more than £50 provided to employees need not be reported.
Payslips for workers
New rules for payslips took effect on 6 April 2019. There are two main changes. As well as employees you must provide payslips to individuals classed as “workers” for the purposes of employment law, even though they bill you for their services as self-employed individuals.
If an individual’s pay includes an amount based on an hourly rate, their payslip must show the number of hours that equate to the amount being paid. Plus, you must show a total for the pay period for each type of hourly pay, for example, total overtime hours.