Article

Paying an annual allowance tax charge

Information on the options to pay an annual tax including using scheme pays.

15 October 2020

This page details the three options there are to pay an annual allowance tax charge, which are carrying forward unused annual allowance from previous tax years, paying the tax charge from own personal funds and using the scheme pays facility.

Staff affected by annual allowance can choose to pay their tax charge by using the scheme pays facility provided by the NHS Pension Scheme, carrying forward unused annual allowance from previous tax years, or by paying the tax charge from their own personal funds. This page gives you information on all three options, including how to access the scheme pays facility. The page also includes information on the NHS England and NHS Improvement arrangement to reimburse clinicians for tax charges they may face during the 2019-20 financial year.

To support employees who are concerned they may incur an annual allowance tax charge, we have developed a pension tax ready reckoner, which will help employees assess their annual allowance liability.

Scheme pays

Members of the NHS Pension Scheme can ask NHS Pensions to pay some, or all of the annual allowance tax charge to HMRC on their behalf. In return, pension payments in retirement are reduced by a corresponding amount. This means the member does not need to settle any pension tax bills with cash upfront.

Scheme pays is available to all members of the scheme who breach their annual allowance. If a member meets certain criteria, the scheme will pay this charge on their behalf if they ask them to. This option is available to members:

  • with benefits over the standard lifetime allowance*
  • who have incurred a tax charge of over £2,000
  • who submitted a request to use Scheme Pays before the deadline.

*Scheme pays is not available for tax charges incurred on excess benefits above the tapered annual allowance.

There are two scheme pays options available to members, mandatory scheme pays, and voluntary scheme pays. For more information on mandatory and voluntary scheme pays, visit the NHS Pensions website.

Scheme pays presentation and recording

To help support your conversations with staff about scheme pays, we have created a presentation and accompanying recording, which you can share with staff or show during a staff seminar.

Please note, the NHS Pension Scheme can pay 100 per cent of a member’s annual allowance charge in respect of NHS benefits to HMRC, using either the mandatory or voluntary scheme pays facility, or a mixture of both.

Timescales and deadlines

Members must notify NHS Pensions of their intention to use scheme pays before the annual deadline for the relevant tax year. Download the guide to scheme pays and the scheme pays election form from the NHS Pensions website.

Use our annual allowance key dates and actions infographic to remind yourself of key timescales and deadlines.

Please note

The voluntary scheme pays election deadline for members of the NHS Pension Scheme has been extended to 31 March 2021 for tax bills relating to 2018-19. This decision has been taken because NHS Business Services Authority, who administer the scheme, is keen to support NHS colleagues considering the pressures faced by staff during the COVID-19 pandemic.

The deadline for mandatory scheme pays remained as 31 July.

Responsibilities

Member – Calculate tax charge, inform HMRC and ensure the tax charge is paid.

Employer – Provide accurate employee data to NHS Pensions, help answer any queries and signpost staff to independent financial adviser when necessary.

NHS Pensions – Calculate the pension input amount, send pension savings statements and pay the tax charge to HMRC where members request to use scheme pays.

Carry Forward

Employees may use any leftover annual allowance from the previous three tax years to cover an annual allowance tax charge. Any unused allowance from these years may be added to the employee’s annual allowance limit in the current tax year. This may prevent an annual allowance charge or reduce the amount due. If there is enough leftover annual allowance to cover the charge in full, the employee will not need to take any further action. Employees can use the information on their pension saving statement alongside guidance from HMRC to check if they have any unused annual allowance.

Paying the tax charge from own funds/savings

Employees may pay the annual allowance tax charge directly to HMRC from existing personal funds or savings through the self-assessment tax return. Employees who do not usually need to complete a self-assessment tax return will need to register for the service. All forms and help sheets can be found on the HMRC website.

Reimbursement of 2019-20 pension tax charges

NHS England and NHS Improvement announced that the NHS will reimburse clinicians for any tax charges they face in the 2019-20 financial year. They have released information and a series of resources to support employers to make affected staff aware of the reimbursement and what they need to do. For more information about this arrangement, including a range of resources for employers and staff and FAQ’s, please visit the NHS England and NHS Improvement website. Resources include:

  • general guidance template letters
  • FAQs for employees and employers
  • guidance for GPs and primary care clinicians.

Independent financial advice

We recommend that members of the NHS Pension Scheme who are affected or concerned about the annual allowance seek independent financial advice about their individual circumstances. We have published a list of organisations that are able to offer expert guidance and advice on pension tax issues for members of the NHS Pension Scheme.