In April every dental practice in the UK or Wales with a GDS Contract or a PDS Agreement received its Annual Reconciliation Report (ARR), which determines the amount of NHS Pension for each dentist.
Every practice that received the ARR now has a statutory duty to submit a completed form to the PCT/LHB by 31 May.
Robin Barnes, a chartered accountant at Edgbaston firm JW Hinks and a member of the National Association of Specialist Dental Accountants and Lawyers (NASDAL) says although clearer guidance notes have been issued, dentists should still be aware of the correct procedure for completing the ARR and allocating pensionable pay.
“It is essential that the ARR is accurate in apportioning pensionable pay available at the Practice amongst its dentists who are members of the NHS Pension Scheme (NHSPS),” he said.
“Unfortunately previous guidance on ARR was found to be not fit for purpose. Thankfully discussions between NASDAL, the BDA, The Pensions Agency and NHS Business Services at Eastbourne resulted in clearer guidance being issued to accompany the 2011/12 ARR.
“One of the main problems with earlier ARRs was the underestimation of the pensionable pay of some 3,000 associates, however the Guidance notes with 2011/12 ARR now clarifies their position, stating that any associate’s pensionable pay is the amount paid to the associate for GDS/PDS work undertaken.”
Dentists should find the superannuation process far easier now with the publication of this new comprehensive guidance.
“The new guidance means that dentists can now follow three easy steps to complete the ARR,” added Robin.
“Firstly dentists should calculate 43.9% of the achieved GDS/PDS contract value – this identifies the maximum pensionable pay to the Practice that is distributed among dentists who are members of NHSPS.
“Any dentists who are not members of the NHSPS should then be identified. These are dentists already in receipt of their NHS pensions, dentists who have opted out of the NHSPS or associates who are incorporated and who cannot pension their income with effect from 7 November 2011.
“The final step is allocating the pensionable income to the dentists at the practice depending on whether the practice is a Sole Practitioner or Partnership, or Limited Company.”
The pensionable income allocation to dentists in a Sole Practitioner or Partnership is 43.9% of the achieved GDS/PDS contract value minus the declared pensionable pay (net amount of GDS/PDS work undertaken to year end 31 March) of the associates and any dentists who are not members of the NHSPS.
In the case of the sole practitioner, the balance remaining represents the pensionable pay of that sole practitioner. For a partnership the balance remaining can be allocated between the partners in any proportions provided by the partnership agreement.
The total pensionable pay allocated to the dentists working at the Practice cannot exceed the pensionable pay ceiling and if there is a non-pensionable dentist working at the Practice then the declared pensionable pay on the ARR may fall short of the ceiling by the amount earned by the non-pensionable dentist.
Dentists should be aware that it is unlawful for this shortfall to be allocated to other pensionable dentists at the Practice.
If the Practice employs a dentist then the amount of that dentist’s basic NHS salary constitutes their NHS pensionable pay and must be deducted from the pensionable earnings ceiling to arrive at the balance available to the sole practitioner or partners.
For a limited company the process involved for completing the ARR is exactly the same as for a sole practitioner or partnership up to the point that the balance of the pensionable earnings ceiling has been determined.
“At this point the pensionable pay of the director/shareholders who are active
NHSPS members is the amount of salary and dividends paid to those director/shareholders in the year to 31 March, the NHS Pension year,” said Robin.
“If a Practice received mixed dental income (NHS and private), there is no need to split salary/dividends between NHS and Private for NHSPS purposes.”
“Where salary and dividends paid to director/shareholders falls short of the pensionable pay ceiling, the unused balance cannot be carried forward to future pension years and it is unlawful to allocate the shortfall to any other pensionable dentist at the Practice.”
Robin warns that further changes to the ARR affecting associates are likely to come into affect before the 2012/13 ARR period
“New legislation was enacted in November last year which means there will be major changes in the 2012/13 ARR to further safeguard the pensionable pay of associates,” he said.
“However in the mean time the guidance notes for the 2011/12 ARR are far more suitable than earlier versions and ensure a more accurate allocation of pensionable pay to all dentists involved in the process.
“Despite the improved guidance, I would still urge dentists to seek guidance from an approved dental accountant on completing the ARR.”