Are you confident you are calculating your net pensionable earnings correctly?
The actual net pensionable earnings earned by every performer in the year ended 31 March 2016 must be agreed and submitted by 30 June 2016. The estimated net pensionable pay stated on the Annual Reconciliation Report may not be correct and you should calculate the actual figures.
This article will help you with the calculations.
Pensionable earnings ceiling
The first step is to identify the pensionable earnings ceiling. This is 43.9% of the NHS contract value, which excludes maternity, paternity, sick pay and trainer grant. The contract value used should be adjusted for any agreed over performance/contract adjustment or conversely, for any underperformance or clawback.
Dentists who are not members of the NHS pension scheme (NHSPS)
Step two is to identify the pensionable earnings equivalent of dentists who are not members of the NHSPS. This might be dentists receiving their NHS pension, dentists who have opted out of the NHSPS or incorporated associates who cannot ‘pension’ their NHS income. Pensionable earnings attributable to these dentists form part of the pensionable earnings of the practice and by law cannot be allocated to any other dentist.
Pensionable pay of associates
Step three is to identify the pensionable earnings of any associates. For an employed performer this is simply their gross basic salary. For self-employed associates, pensionable pay is their net NHS income. This is best illustrated by an example.
Performer A has completed 5,000 UDAs in the year at £20 per UDA. Their practice agreement states that they contribute 50% of the UDA value, lab fees and bad debts to the practice.
NHS: 5,000 UDAs @ £20 - £100,000
50% surgery contribution - £50,000
50% NHS lab fees - £3,000
50% NHS bad debts - £500
Statutory levy - £100
Superannuation - £4,000
Total deductions - £57,600
Net pay - £42,400
Performer A’s net pensionable pay for the year is £46,400 (superannuation contributions are excluded).
If an associate is paid a set monthly amount for NHS work performed with an annual adjustment for UDA work actually achieved, then this adjustment should be included in the pensionable earnings calculation.
The above is a simple example and various other scenarios could arise. It is only the NHS element which is pensionable, so any private fees and related lab fees or bad debts should be identified and excluded from the calculations. Please get in touch if you have any questions regarding your circumstances.
Pensionable pay of sole traders or partnerships
After determining the pensionable pay of associates and taking into account the NHS income of dentists not in the NHSPS, the remaining balance of the pensionable earnings ceiling is the amount the sole trader or partners can ‘pension’. For a partnership the balance can be allocated between partners as per their agreement.
Pensionable pay if incorporated
After following steps 1 to 3, the remaining balance is the amount the dentist shareholders could ‘pension’. The dentist shareholders can only ‘pension’ income they take from the company in the form of salary and dividends. Income that is left in the company is not pensionable. Where a limited company practice performs NHS and private work any salary and dividends are available for allocation as NHS pensionable income.
Agreeing the figures
The final step is to agree the figures with the performers. Once the practice has entered the figures onto Compass, the performers are expected to log in to confirm their pensionable earnings. If they disagree with the figures you will need to determine why.
The pensionable earnings declaration should be completed by 30 June 2016.