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NHS Pension Scheme Contributions and Dividends

Treatment of NHS pension scheme contributions on SA tax return

Hi. Has anyone come across this particular scenario? My client is an NHS junior doctor who is a basic rate tax payer and makes employee pension contributions into the NHS pension scheme (contributions are taken from pay before tax is taken off). However, they submit a self-assessment tax return because they receive dividends from a family company. We are calculating the maximum dividend they can receive in 2018/19 order to stay within the 7.5% dividend tax rate. My question is, am I correct in including their employee pension contributions (per their P60) in box 3 on page TR4 of the SA tax return? This has the effect of reducing their earned income in their tax computation and hence increasing the dividend that can be received which is taxed at 7.5%. Any help or guidance gratefully received. Many thanks

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25th Mar 2019 09:14

No, not if the tax is calculated on the figure after the contributions.

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By CMH
25th Mar 2019 09:45

Yes, payslip shows that tax is calculated on gross pay less pension contributions. So the employee pension contributions into the NHS scheme are irrelevant for SA tax return purposes, and the maximum dividends to stay at 7.5% for 2018/19 are calculated as £46,350-taxable pay?

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25th Mar 2019 09:54

Just as an exercise, you can add the contributions back on to the pay, use that figure as the salary, then enter the contributions as such on the SA return, then compare with using the net salary figure after pension contributions are taken off and leave out the contributions entirely, either way will get you the same answer and will give you the same level of dividend available.

Which is, as you say, the BR threshold, less salary after pension contributions.

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By CMH
25th Mar 2019 10:19

Yes, I can see that works, thanks. The dividend is the same either way. A further thought, if the pension contributions were made from NET pay (like some workplace pensions do)then they would be relevant in this scenario and should be included on the SA tax return (box 1 on page TR4) - the effect would be to extend the basic rate limit and hence increase the dividends available at 7.5%. Correct?

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