Tens of thousands of NHS staff could either owe a surprise tax bill – or be due a rebate of around £15,000 due to pension rule changes.
In a landmark court case eight years ago, pension reforms affecting public sector workers were found to be discriminatory, and the government launched a fix – known as the McCloud remedy – to amend the situation.
For affected workers – including doctors and nurses – it has resulted in their pension growth being recalculated for previous years, potentially changing the amount of tax they should have paid.
Some NHS staff may be entitled to refunds while others may have additional tax to pay.
Those potentially affected were issued with letters called remedial pension savings statements (RPSS) which shows how their pension growth has been recalculated. Over 128,000 of these have been sent out – 48,725 related to individuals who may need to take tax-related action.
Some of these people will previously have been recorded as breaching the annual allowance – the limit on what you can save in your pension pots in a tax year before you have to pay tax – but new calculations mean they may have been overcharged. For some others, the reverse could be true.
Those requiring an adjustment to their tax bill need to use HMRC’s online service, but HMRC figures show that just 18,577 submissions relating to NHS pension adjustments had been received by late September, which is around 30,000 fewer than the 48,725 RPSSs identified as potentially requiring tax-related action.
The figures come from MediFintech, an NHS pension specialist, which show that many workers may be missing out on substantial tax refunds or facing unexpected tax liabilities.
It is calling on the NHS Business Services Authority (NHSBSA), which administers the NHS pension scheme, to urgently contact members whose RPSS indicates potential tax action, making clear what they need to do and the consequences of failing to act.
Jack Needham, technical pensions specialist at MediFintech, said: “The McCloud remedy has left thousands of NHS workers facing an incredibly complicated tax exercise, and these figures suggest a significant number may still need to establish whether they need to take action.”
“There can be substantial sums at stake. Almost six in 10 cases we have helped complete have resulted in a tax refund averaging more than £15,700, while others have additional tax to pay.”
NHS staff are generally required to report extra tax they owe within three months of receiving their RPSS and can technically be fined and face penalties if they don’t, although HMRC has so far taken a pragmatic approach to enforcing this deadline.
Those entitled to refunds of previously paid tax have longer to act, with deadlines of 31 January 2029 for most people, and a later deadline of 31 January 2031 for pensioners.
However, a more pressing concern is the 6 July 2027 deadline for something known as ‘mandatory scheme pays’. If you meet this deadline for reporting underpaid tax, your pension scheme can pay your annual allowance tax bill directly to HMRC in exchange for a reduction in your future retirement benefits.
MediFintech is urging HMRC to extend this deadline further, given the delays in issuing statements and the complexity of the calculations involved.
Eligible NHS workers can also reclaim up to £1,000, including VAT, towards certain professional help – such as accountants – required to calculate and report their revised tax liabilities or claim refunds through HMRC’s online service.
A spokesperson for the NHSBSA said: “We recognise that the McCloud remedy introduces tax complexities for some members.
“Our message to every member who has received an RPSS is to read the statement carefully, use the HMRC tool to check their position and to not assume there isn’t any further action to take.
“We continue to work closely with HMRC to support members through this process and keep our guidance up to date.”
HMRC was contacted for comment.