A progressive, South West based accountancy practice


A Prescription for Disaster

The Excess Pension Contribution Tax Charge

(or how to rid yourself of the most experienced doctors in the NHS)


It must have been a slow day in the office. The Department for Mucking Up the Tax System (“DMUTS” for short) was running short of work. That irritating new body, The Office of Tax Simplification, had just recommended that 150 of their greatest ideas should be scrapped, and the reason given:

“So ordinary taxpayers could understand their tax position more clearly”

The Head of Department (HoD) was furious; two decades of work was likely to be wiped out in a matter of months; where was the joy in having taxpayers actually know what they paid, and why?

The minions sat at their desks and trembled as they had seen something similar before; back in the day, Gordon Brown introduced a TAX FREE amount of £10,000 for ALL limited companies. Then, the HoD went ballistic and got it scrapped post haste. What would he do now?

There was an obvious solution. Governments of every political hue had given tax relief on pensions contributions for decades; that’s a prime target.

The plan

They agreed to cut the limit on the amount you could save each year and still get tax relief.

But that was too simple to understand; “let’s also introduce some rules on how to calculate the amount you’ve invested”.

Better, but not enough! “We have to complicate it further, let’s add in a clawback on the limit for those earning over £110,000 (Ed: this has now increased to £200,000). That should do it.”

“Better still, but you can do more”, came the response.

“OK, so let’s use TWO different measures for income that need to be factored into the calculations and taper the relief for income between those limits as well.”

“Better still, but you can do even more”, came the reply.

“What if we measure the amounts against the limits by reference to an entirely different period of time, so no one will have a clue how we’ve justified the tax raid.”

“Excellent!”, The Head of Department smiled as he imagined the chaos his wonderful team had just caused.

And thus was conceived the “excess pension contribution tax charge” and the “pensions input period”

“A marginal tax rate of 327% should REALLY annoy those horrible tax relief claiming folk,” smirked the Head of Department.

The law of unintended consequences

Of course, what they didn’t realise at the time was that most of the people affected by these changes were the very people they were looking to fund; not Fat Cat private entrepreneurs with vast wealth, but public servants at the very top of their profession, with all the experience and knowledge necessary to train up the next generation and maximise the quality of care while doing so.

The UK now loses more of its Senior Doctors between the ages of 50 and 60 than any other country in the world. The loss of experience, and reduced physical numbers of senior doctors puts pressure on every other doctor, right down to the F1 in their first post after graduation. Staff shortages and a lack of support mean decisions are far more fraught and take longer to implement; patient care and the patients suffer. Not to mention the impact of the health of doctors and other staff in the NHS.

The hit

We have seen tax rates of over 300% of the increased income. The example in the Annex reveals a tax rate of 327%! No wonder many senior doctors are refusing extra shifts, cutting out clinics and even leaving the profession!!

The solution

There is no easy solution.

One option is to ask the Scheme to pay. However, this is effectively a loan which will be repaid by way of a reduced retirement pension.

Another option is to ensure you have claimed the unused allowance from previous years.

Ensure you have claimed for any tax deductible subscriptions, donations or other allowances. You may even like to consider a massive charitable donation to take you below the thresholds.

If you have private income that has caused the issue, you should consider the most tax efficient way structure for that business.

The next step

If you’ve received one of those “dreaded brown* envelopes” (as one consultant described it to me), please contact your tax advisor or accountant. This is particularly important if you receive an excess pension savings charge notice for the first time.

If you don’t have an accountant, or would like a second opinion, please get in touch. They are ways in which the burden can be mitigated, and an option to get the tax paid from your pension. (This requires careful thought and the advice of an IFA with experience in dealing with the NHS scheme).

If you haven’t reached that stage, but would like a second opinion on any tax issue, including a review of your PAYE codes, drop us a line using the details below.

You can reach us at www.numbersukltd.com or through any of the usual social media channels.We even answer the phone at 01752 226084!

Steve Carey is a qualified tax adviser who spends most of his time advising medical and other professionals, including other firms of accountants. You can find him at www.numbersukltd.com

*other colour envelopes are available.


How do they work out the amount of my

annual pension contribution?

The amount of contribution is NOT simply the amount you have paid through your payslips….
Rather, it is taken to be the difference between the deemed value of “your” pension pot at the beginning of the year, and the same value at the end.

The value of your pension pot

Putting bespoke numbers on it should help to provide clarity. We will use a hypothetical senior doctor to demonstrate the issue

Number crunching (assumed)

FactorValue at start of input period
Value at end of tax year
Salary (assumed all pensionable – unlikely)195,000205,000
Years of service2021
Therefore pension entitlement=20/80×195,000=21/80×205,000
Deemed fund value780,000861,008
Lump sum (3x annual pension)146,250161,439
Closing value of pension fund926,2501,022,447
Deemed increase in pension fund*£77,672

*This is calculated as the entitlement at the end of the year less the starting entitlement increased for the rate of inflation. We have assumed a 2% inflation rate for this example.


The increase in deemed pension savings (£77,672) is added to the threshold income (£205,000) to determine if the adjusted income exceeds £240,000. In this case, it clearly does, so the annual pension entitlement is reduced. The excess over £240,000 is £42,672 so the reduction in annual allowance is £21,336, leaving the
annual tax free contribution at just £18,664.

The notional fund has increased by £77,672, which is £59,008 more than the (reduced) allowance. Tax is charged at 45% as this taxpayer has income of over £150,000.
Tax of £26,554 is due. Add to that the 14.5% pension contribution, income tax at 45% and NIC at 2%, you have a total levy of 62% on the payrise of £10,000, leaving just £3,800 increase in cash taken home, and an extra tax bill of £26,554.

So, an extra year of service and a small payrise actually costs this individual over £22,700 in lost take home pay!

A fine reward for another year of service to the NHS and taking on extra responsibilities.

Steve Carey
October 2021

Good news

Steven Carey

Steve completed a review of a medic’s tax code last week which resulted in a refund of £1,400 and a saving in tax of £170 per month going forward. If you have any medics in the family who think they are paying too much tax, they are probably right, and we can help them boost their hard earned take home pay.


Becca conducted a VAT review on a client week. Since they took over their own bookkeeping from us last year, they had missed out on VAT reclaims of £10,000 which she was able to reclaim on their most recent VAT return.


Danny has worked through the projected income figures for a client who’s working situation is slightly changing over the next 6 months to enable a reduction of £835 in the amount of on account payments.


Danny & Lindsey worked tirelessly at pestering HMRC for a resolve to a tax liability that our client never should have owed, after numerous different delays and excuses from the revenue the liability of over £3,100 has finally been reduced to Nil.

Wrongly applied penalty removed

Following an appeal submitted on 26th November last year to HMRC to remove a penalty that was wrongly applied, Becca finally had confirmation today that the penalty has been lifted and the monies returned to our client account.  Took a while but we got there in the end!

Tax bills reduced

Danny has recently saved one of our newer clients some tax by reducing the amount of tax due at 40% by proactively enquiring about their pension payments and utilising the increased basic rate band available because of this.There was also a further saving for an element of interest on a loan that was not considered by their previous accountant.

Overall, the tax saving was around £1500!

Corporation Tax refund

Steve has managed to secure a tax refund for a company client. Investigating the motor expenses in the draft accounts, Steve discovered that three new vans had been acquired during the year and a deduction for the full cost was made using capital allowances rules. This created a loss which was “carried back” against last year’s profits.

The result is one happy client; no tax to pay and a refund of over £2,000 to help them through this COVID-ravaged period.

Steve Carey writes:

“With rumours of corporation tax increasing from 19% to 25%, it has never been more important to see tax as one of your biggest business costs, and to manage it in the same way.

Our Diagnostax service will spot every relevant opportunity for you and can set a five year tax mitigation strategy in place. Clients have saved literally £10,000s from the ideas we’ve identified.

Contact us as soon as you can if you’d like a review.”


“A client’s old accountant signed them up as a limited company, but they didn’t find out until 5 1/2 months later when they moved to Numbers and started trading. When their year end came and went, family issues and COVID meant that they weren’t able to come up with their year-end records in time for the deadline.

I have come up with a workaround so that they don’t receive any penalties from HMRC or Companies House”


“In the very short time that I have been working at Numbers, I have managed to generate corporation tax refunds for two clients. I was able to generate tax refunds that equated to £489.63 for one client & £2,243.33 for another client.”

Please feel free to give us a call and come in for a chat if you’d like to know how we can help you! We won’t charge you for the initial meeting.

We need to act now to avoid Tier 2 restrictions

The rate of COVID-19 cases has now exceeded 130 cases per 100,000 and the numbers are still increasing. The city is on the cusp of a Tier 2 level which means tougher restrictions – no more than one household or support bubble meeting indoors, and only six outdoors. We can expect to enter Tier 2 within a matter of days if this trend continues. However, if we act now, we may be able to make a difference, so we hope alerting the city early enough will prevent us hitting Tier 2.

Most businesses are doing everything possible and feedback from the Health and Safety Executive shows good levels of compliance from our businesses. So far Plymouth has avoided tighter restrictions, but more than ever it is absolutely essential that we are all complying fully, being COVID aware and helping to stay out of Tier 2, protecting your business, your employees and the economy.

  • Safe premises means social distancing, sticking to the rule of six where applicable, coverings on and sanitiser available, with good ventilation and clear information about how to comply
  • Compliance is not optional – we need customers to follow our lead and keep safe
  • If staff can work from home, they should; make it easy for them to do so
  • Employees told to self isolate need and deserve your support – refer them to the help available if needs be: 

More information and support on compliance is available here

The government has recently given us further enforcement powers and while we only want to use them as a last resort, we will do so in order to protect our city. Action has already been taken against one licensed venue through a fixed penalty notice. Fines in excess of £10,000 can be levied so we hope we don’t have to take more action, as this is about stopping COVID-19, not penalising businesses.

Tier 2 will see all of our businesses affected by the limitations on households mixing indoors. I cannot stress how imperative it is everyone across the city understands the seriousness of COVID-19 and the consequences for our community. We must work together in order to protect our health, our NHS, our families, friends and our economy.

Much has been said about the impact of the restrictions – the actions we have been taking ARE working, as we can see from the level of R, but more needs to be done. The R rate before we had any restrictions was 2.5 to 3; it dropped below 1 during the spring, and remained low in the summer. It is currently at 1.3 and we need to get it back down.

Help and Support

How can we help you?

We understand that everyone will have different needs or concerns and it is important for the Public Health Team to be able to address those, equipping everyone with the support they need in order to keep Plymouth safe.

Part of our current insight work is looking how we can better help people across the city; if there is anything that we can provide which will benefit the business community, please share these with us: COVID19@plymouth.gov.uk. You can also contact us with any queries you have too.