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.

Most Independent Practitioner Today readers have some form of employment income in addition to their private practice. For many, this will be the NHS – and the health service’s payslip can be complex.

Although this complexity makes understanding your payslip more difficult, this does mean we can gather a significant amount of information from a single payslip. Richard Norbury (right) has some practical tips to aid understanding of the payslip and highlights some common pitfalls 

Tax code

Your tax code reflects the tax-free amount being applied to your salary.

It is made up of a number of elements, but for medics will primarily relate to personal allowance, tax relief on employment expenses and adjustments for unpaid tax in previous years.

The tax code is usually a number with a prefix or suffix letter. The number dictates the tax-free amount divided by ten.

For a lot of people, the tax code will just be the personal allowance, currently £12,570 for 2022-23.

The tax-free personal allowance can be reduced when an individual earns over £100,000 of taxable income. Then it reduces by £1 for every £2 over the threshold.

This means when you reach £125,140 you have none of the original £12,570 left. The effect of losing your personal allowance in full is additional tax payable of £5,028.

Your tax code may also include any professional subscriptions paid so that the tax relief is spread during the year. The code may also incorporate regular charitable donations under Gift Aid.

It may be that you have under-paid tax in previous years. If you are not ordinarily submitting a tax return or if you opted to pay any shortfall of tax via your tax code, your tax code may include the col-lection of underpayments.

The loss of personal allowance can lead to an underpayment of PAYE. Understandably, HM Revenue and Customs (HMRC) struggles to accurately calculate tax codes in these circumstances, especially if the salary goes up during the year.

If your taxable income was under £100,000 in the preceding tax year, then HMRC will have no reason to reduce your tax code in the next financial year.

HMRC should send you a copy of your tax code calculation. It is possible to have the tax code amended if required.