Higher earning GP partners may have substantially higher tax bills to pay in 2018 and should start planning now. With doctors due to pay their January 2017 tax bills today, the Association of Independent Specialist Medical Accountants (AISMA) is warning GP partners to prepare for the worst this time next year when the impact of changes to the annual allowance last year will be felt for the first time.
The annual allowance is the increase in value of a GP’s pension each year before more income tax is charged. It was lowered on a sliding scale down to £10,000 for the highest earners in April 2016. For these doctors, if the growth in pension benefits exceeds the annual allowance, the excess will be taxed between 40% and 45%.
Luke Bennett, AISMA committee member and partner at accountancy firm PKF Francis Clark, said: “By our reckoning one in ten GPs will be affected and the sums involved are pretty hefty. I have been warning some of my GP clients to expect additional tax charges of over £20,000.” He continued: “Normally when you pay more tax it’s because you’ve earned more money. But there will be no more money in GPs’ pockets to pay next year’s tax bill than there was this year.”
GPs can elect for the NHS pension scheme to pay some of the tax on their behalf but maximum limits apply and many will still have to find large sums of cash to pay the tax.
Mr Bennett says his GP clients are looking at various options to cope with the financial hit in 12 months’ time. “Some are starting to save now, while others are looking at ways of lowering their income to bring the tax charge down. There’s also the option of coming out of the NHS pension scheme or dipping in and out of the scheme and putting aside the contributions to pay the tax bill when it arrives.”
He added that there are no ‘one size fits all’ solutions since all GPs will be in a different position. “It’s essential to work with a specialist accountant who can advise you on the tax position and also a financial planning adviser who has specialist knowledge of the workings of the NHS pension scheme.”