Potential Changes to Annual Allowance 2019/20

Recent information in the press suggests that the NHS in England will be issuing a proposal to pay pension savings tax charges for Doctors who exceed the annual allowance in 2019/20 in an effort to encourage Doctors to increase their hours without the potential additional tax burden.

Currently there are no specific details of how this would work in practice, however, the indications are that for relevant NHS pension scheme members with a tax charge in 2019/20 they should make an election for the scheme to pay their tax and the NHS would then make good the amount needed by the pension scheme to retain the individual’s level of pension benefits at retirement as if the election had not been made.

What we do not know yet is how this would affect the individuals who are effectively having a tax liability paid for them.  Ordinarily, where an employer provides a cash benefit, this would be subject to tax and national insurance.

Would the money paid into the individuals pension be considered an additional employer contribution?  In which case, would this then also impact the pension growth or the calculation of the tapered annual allowance.?

The information currently available confirms that the proposal is intended to encourage Doctors to take up extra work due to the increasing demand over winter in both hospitals and general practice. 

There are no signs that this stop-gap measure will be available to all NHS pension scheme members affected by annual allowance pension tax charges. 

Currently the suggested proposal is only for Doctors in England and we do not yet know if this will be adopted by other jurisdictions.

There are also no details of how this proposal would be administered.

Further information on this is expected to follow soon.

If you have any questions or require any more information on this subject, please contact Andy Purcell or our Healthcare team on 01253 404404.

AISMA Doctor Newsline – Autumn 2019

Read on for a mine of information, packed with smart advice and tips, to help everyone in your practice understand not only what’s going on but how to make the most of it! This guide has been prepared exclusively for AISMA clients by AISMA vice chairman and MHA Moore and Smalley Healthcare Services Partner Deborah Wood.

Six good reasons to file your tax return early this year

Aside from avoiding the panic and stress of trying to find all your tax return information to send to your accountant just before the 31 January deadline there are several other good reasons to get your accounts organised earlier in the year.

1. Get a repayment sooner

If you have overpaid tax during the year you will be entitled to a refund from HMRC. If you know you have overpaid, it is advisable to complete your tax return as soon as possible, so that you can claim this refund. Refunds can be held on HMRC’s account as a credit but the interest received is minimal and it is likely that you will receive a better interest rate with your own bank.

2. Give yourself longer to plan your payments

Providing your accountant with your tax documents as soon as possible after the tax year end (5 April), allows them to calculate your tax liability and advise you of any tax payable in January. Balancing payments are due by 31 January following the end of the tax year, therefore the sooner your liability is calculated, the longer you have to save or plan for these payments. Those who leave their tax returns until January have little time to find the funds for their tax bills. Furthermore, late payments mean that penalties and interest payments may become due.

3. Working Tax Credits

For those who are in receipt of tax credit payments, claims need to be renewed annually by 31 July. Part of this process involves informing the Tax Credit office of your income for the previous tax year. By providing your tax return information early, your tax return can be completed in good time to show your income for the previous tax year, which will avoid the need to submit temporary estimates and the possibility of being over or underpaid.

4. Payments on account – reduce the chance of over or under payments

For those who are due to make payments on account towards the following tax year, by completing and submitting your tax return to HMRC before 31 July, your tax adviser will able to assess whether these payments still need to be made. If your income for the year is lower than expected, you may be able to make a claim to reduce these payments on account. This could avoid the potential overpayment of tax, as well as a waiting period for HMRC to issue this amount as a repayment to you.

5. Tax planning opportunities

An early calculation of your tax position gives you longer to take advantage of tax planning opportunities for the following year such as

  • Making gift aid or pension contributions to ensure you receive your full personal allowance
  • Changing ownership of shares or partnership profits
  • Transferring assets to a lower earning spouse
6. Tax code

If you get your information in early, it can also have an effect on the way the tax is collected. You can choose to pay your self-assessment bill through your PAYE tax code as long you meet certain criteria set by HMRC.  To take advantage the following must apply:

  • You owe less than £3,000 on your tax bill
  • You already pay tax through PAYE, for example you’re an employee or you get a company pension
  • You submitted your paper tax return by 31 October or your online tax return online by 30 December
Use a digital system to get organised

Do you struggle to keep a note of your self-employment and rental income and expenses each year for your tax return? QuickBooks is an accounting software which connects to your bank and allows you to enter your income and expenses as they are received or incurred. This keeps you organised throughout the year so you do not have the stress of collating the information in January.  Your accountant can have access to the information online too which speeds up the sharing of information.

Regardless of your choice in software the main thing is to keep records in an organised manner to ensure all allowable expenses are claimed. Remember for every £1 of expenses you can potentially save £0.29 or £0.42 depending on what rate of income tax and National Insurance you pay. 

Make a new ‘financial’ year resolution

In conclusion, the earlier your accountant receives your tax information the earlier you can have an up to date position regarding your tax affairs. It will give you time to plan, reduce or increase your savings for your tax liability and avoid the stress of a frantic search for information in January.

If you would like any more information on this subject please contact Lisa Pennington or call 01253 404404

What’s next in the pension discrimination row?

On 15 July 2019 Liz Truss, the Chief Secretary to the Treasury, laid a written statement before Parliament accepting the Supreme Court’s decision to refuse a government appeal against the Court of Appeal’s determinations in the Judges’ and Firefighters’ pension discrimination cases. This was the case that found that younger members of the pension schemes, who were not eligible for transitional protection from moving to the new schemes in 2015, had been discriminated against. In that statement, she also conceded that the same discrimination also applies in the other public sector schemes, including the NHS.  So, what next?

The Judges and Firefighters will now have their cases referred to the original Employment Tribunal, which will have the responsibility of finding a remedy. Truss advised that the “government will engage fully with the Employment Tribunal to agree how the discrimination will be remedied. Alongside this process, government will be engaging with employer and member representatives, as well as the devolved administrations, to help inform our proposals to the Tribunal and in respect of the other public service pension schemes. Initial estimates suggest remedying the discrimination will add around £4bn per annum to scheme liabilities from 2015.”

What does this tell us? Nothing really. Whilst many public sector schemes are similar, they are not identical. They have different accrual rates and contributions rates. In the new Teachers’ Pension Scheme, for instance, you earn 1/57th of your annual pay in pension each year, whilst in the NHS it is 1/54th. Contribution rates in the Teachers’ Scheme range from 7.4% to 11.7%, whilst in the NHS they range from 5% to 14.5%. The quantum of the ‘remedy’ will therefore not be the same in both cases, just as it would not be for members of different ages at different levels within the transitional protection scale.  So perhaps what we will see is general principles being agreed and the Government Actuaries Department providing ‘remedy tables’ for everyone. But we aren’t any the wiser at this stage in knowing what the government may propose or what they are basing the £4bn on.

Another way of looking at it, though, is this; if you accept the stance that the Court of Appeal’s decision effectively made transitional protection illegal, the remedy may be that everybody is retrospectively forced into the 2015 Pension Scheme on 1 April 2015. Everyone is therefore treated the same, so there is no discrimination. Maybe the BMA should be careful what it wishes for.

For more information on this subject contact David Walker or call 01772 821021

Tax Mitigation in Healthcare

In this video Lisa Pennington and Rob Hadden discuss mitigating tax, especially for healthcare professionals, with a focus on personal expenses.

With personal expenses becoming increasingly important it is essential to understand what people are claiming with regards to personal allowance and tapered annual allowance.

Individual Protection 2016

Over the past few years we have seen adjustments to the Lifetime Allowance for pension savings, and a number of protections have been made available to protect your benefits. Individual Protection 2016, which also goes by the acronym of IP16, is one form of protection currently available.

Our annual CSR results for 2019 are in!

We have had another fantastic year at MHA Moore & Smalley. After sending out the survey to over 4200 clients, we have received an overall satisfaction score of 96%, a 1% increase on last years, already great, result.

This score is based on clients’ answers in response to questions that rate us in terms of communication, technical ability, commitment to each individual business, and our CRM.

Thank you to everyone who got involved. Delivering outstanding client service is at the heart of everything we do. Therefore it is wonderful to know that we are delivering on our mission, vision and values, as we continue to improve and strive to be the best we can be.

Take a look at this year’s results below

Why we insure our pets, but not ourselves…

When you think about a financial plan, most people will think about ways to build their wealth, be this through careful tax planning, pensions, investments, etc. So few, however, think about protecting that wealth that they have worked so hard to build up.

In a UK-wide study carried out by insurer Legal & General, it was found that the average employee would be on the breadline in just 32 days if they lost their main source of income due to death of spouse, critical illness, accident/illness resulting in being off work.

The same study found that a quarter of us would have completely exhausted our savings in one week or less, if we found ourselves in this situation. For those lucky enough to have savings which could support them longer than this, they may be compromising the quality of their life in retirement, forfeiting early retirement, using monies intended to get children on the property ladder, or leaving legacies to grandchildren.

With all this in mind, it seems strange, therefore, that we have no problem insuring our cars, valuables and pets, yet we view insuring our own lives as a lesser importance.

There are a number of reasons why this is, and some of it comes down to what psychologists call “optimism bias”.

Optimism bias is described as the enduring, against-all-odds belief that, on an individual level, things are going to work out. It is believed that this mindset stems from the human desire of control; in particular, to feel that you have control over your life, and is reported to effect over 80% of us, regardless of age or gender.

This feeling is coded within the brain’s frontal lobe, which has led some experts to conclude that optimism bias is essentially a form of survival instinct. As you can imagine, therefore, it can be very uncomfortable for us to challenge this instinct and, sadly, it often takes us, or someone close to us to go through a significant negative life event (e.g. death, critical illness, loss of income), in order to break this mentality.

So how can we protect ourselves from the pitfalls of an overly optimistic mindset, without becoming an outright pessimist?

In her 2012 TED Talk, Tali Sharot (professor of cognitive neuroscience at University College London) explains that, although on balance optimism bias can be a good thing (afterall, there is a wealth of research which shows that adopting a positive mindset can be linked to increased life expectancy, improved recovery from illness, etc), we should not be ignorant to the “cognitive illusions” that our brains like to create. Simple acknowledgement of these biases, according to Sharot, is the first step in protecting from their harms.

From here, many academics recommend that building a diverse ‘sounding board’ of trusted individuals within our lives can help us attain a more objective viewpoint at times when our own biases may cloud our judgment. As well as friends and family, this inner circle should be populated with a number of professional advisers (such as an accountant, Financial Adviser and/or solicitor), who may be able to offer enhanced impartiality when it comes to significant personal and/or financial decisions.

To conclude, although it is believed that optimism bias does generally deliver good personal outcomes, these positive outcomes could be further enhanced by acknowledging our weaknesses and building defences in the areas we are most vulnerable.

If you would like to understand more about the importance of protection for you and your family, speak to one of our Financial Advisers today.