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Health secretary warns of ‘tax avoidance’ in plan to pay doctors’ pensions tax

Emma Lunn
Written By:
Emma Lunn

Health secretary Matt Hancock has supported the proposals from NHS England about doctors’ tax bills but raised concerns about tax avoidance unless the details of the scheme could be clarified.

Earlier this week, Simon Stevens, NHS England chief executive, wrote to Hancock setting out a plan for staff affected by the NHS pensions crisis to be able to use money from their pension to pay tax bills incurred because of overtime, with the NHS topping up their pots at a later date.

Stevens said the proposal “will involve a commitment to make payments to certain clinical staff outside of the NHS pension schemes to restore the value of their pension benefits package, if they have elected to use the ‘Scheme Pays’ facility to settle an annual allowance tax charge arising from of their pension saving in the NHS schemes in 2019/20.”

In a reply to Stevens, Hancock said he accepted that it was “operationally necessary and urgent” to take further action on clinicians’ pensions to protect patient care over winter.

The letter also said: “As you set out, the proposals which you plan to introduce for ‘Scheme Pays’ for the 2019/20 tax year constitutes an example of tax planning. Depending on the detail of how you put the proposed approach into practice, the scheme could constitute tax avoidance. In deciding on this detail, you should seek to minimise this risk.

“The proposed measure is therefore incompatible with paragraph 5.6.1. of Managing Public Money. I am advised by Sir Chris Wormald that this is an issue of regularity and propriety and that if I am so minded the direction should be granted on that basis, taking into account the wider public interest which I am able to bring to bear.”

Hancock went on to say: “I am content formally to direct you to proceed with your operational proposals, as set out in your letter for clinicians and for 2019/20 only.”

The past few months have seen medical staff turning down extra shifts because they were being hit with large tax bills as a result of changes to pension contribution rules.

The annual limit was in excess of £250,000 as recently as 2010/11, but it has been cut dramatically and now stands at just £40,000.

For higher earners an additional “taper” brings the allowance down further to just £10,000 for individuals with total earnings of £210,000 or more.