Superannuation Contributions

Tax Question

Health and medical professionals are usually members of the NHS Pension scheme. For employees, this is operated via a ‘net-pay arrangement’ (not to be confused with salary sacrifice), where the employer deducts the superannuation contribution from the employee’s gross pay via the payroll. Income tax is then calculated with reference to the remaining ‘net’ pay and paid via PAYE, which means full tax relief is given up front.

Tax Answer

Health and medical professionals are usually members of the NHS Pension scheme. For employees this is operated via a ‘net-pay arrangement’ (not to be confused with salary sacrifice), where the employer deducts the superannuation contribution from the employee’s gross pay via the payroll. Income tax is then calculated with reference to the remaining ‘net’ pay and paid via PAYE, which means full tax relief is given up front.

PTM044230 – Contributions: tax relief for members: methods: net pay – HMRC internal manual – GOV.UK (www.gov.uk)

Consultants and other self-employed NHS professionals are required to make both their own member contributions, plus the ‘employer’ contributions the NHS would have made if the practitioners were employees. All of these superannuation contributions are treated for tax purposes as if they were made by the practitioner and should be relieved as member contributions.

Unlimited pension savings can be made by an individual each year, but tax relief will only be given on amounts saved up to annual allowance cap. The allowance is currently set at £40,000 but may be subject to a tapering reduction for those with high income. At this point it is important to note that superannuation contributions made to the NHS Pension Scheme are disregarded for the purposes of determining whether pension contributions exceed the annual allowance.

BIM54020 – Doctors and dentists: superannuation – HMRC internal manual – GOV.UK (www.gov.uk)

Superannuation contributions are however relevant to where tapering is applied and will need to be accounted for in the calculation of ‘adjusted income.’ Tapering will be relevant if ‘threshold income’ for the year (income excluding any pension contributions other than those made via salary sacrifice) is over £200,000 AND, ‘adjusted income’ (income added to any pension contributions made by scheme members and an employer’s) exceeds £240,000.

PTM057100 – Annual allowance: tapered annual allowance – HMRC internal manual – GOV.UK (www.gov.uk)

Both employees and self-employed practitioners will need to include their total member contributions at Step 3; this is the amount deducted from gross salary by the employer or the total contributions paid out of gross income by the practitioner.

Because the NHS Pension is a defined benefit scheme, the figure to be used at Step 4 is determined by the special rules for defined benefit schemes. The value of superannuation savings is the difference between the opening value of the defined benefit immediately before the start of the tax year, and the closing value of the defined benefit at the end of the tax year, which is identified by deducting the opening value from the closing value. If the difference is a negative amount the pension savings for that input period will be nil.

Details of how to calculate this value are given in HMRC’s Helpsheet HS345 and in HMRC’s Pensions Tax Manual at PTM053301.

Pension savings — tax charges (Self Assessment helpsheet HS345) – GOV.UK (www.gov.uk)

PTM053301 – Annual allowance: pension input amounts: defined benefits arrangements: general – HMRC internal manual – GOV.UK (www.gov.uk)