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Many of you will have read reports in The Telegraph over the weekend headed ‘The electric car trap that could land you a £30,000 bill’.

The article highlighted the pitfalls associated with such a scheme and gave the example of NHS consultants.

The article is good in that it brings to the public attention something that, we as specialist medical accountants, have been aware of from the inception of the concept of the Annual Allowance (AA) many years ago and are well versed in giving advice.

The article goes on to explain that having the car for two years can avoid the AA tax charge. This is true in the majority of circumstances.

This is because the majority of any tax is associated with the deemed growth in the 1995 NHS Pension Scheme which is linked to your final salary and the best of the last three years of your service.

What the article failed to address is if there are any other ways to avoid the Annual Allowance Tax if you were in a three year or longer contract or coming up to retirement.

The good news is that there is a way to mitigate/extinguish the AA tax if you are in one of these scenarios.


Avoid AA Tax

The tax year 2023/24 is probably the best year to get out of any NHS Fleet Car deal even if penalties may arise. Obviously, you will need advice and we can assist.

The reason why it is the best year is all to do with inflation.

For Annual Allowance purposes the Revenue compares the growth of your pension at the end of the tax year with the beginning of the tax year after the beginning of the tax year has been uplifted for inflation. The inflationary factor used for the beginning of 2023/24 tax year being that of September 2022.

Although, September has not been reached it is anticipated to be in the region of 10%.

With such a high inflation uplift for the calculation it is likely that the growth in the 1995 scheme for the majority of you will be zero even after the NHS Fleet Car has been returned. It may be best to return the car as close as possible to the 6 April 2023 or shortly thereafter.

If your three year or longer contract is coming to an end shortly it may be worth considering extending it close to 6 April 2023 or shortly thereafter.