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
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.
Often additional roles such as bank work, waiting list initiatives or second employments are not included on your usual payslips, even if this is paid by the same trust.
If you have multiple employments, a separate tax code should be applied. A common error is that your main tax code is applied to this post as well as the main substantive post, which again can cause an underpayment of PAYE.
This is often easily rectified by changing the code with HMRC but needs to be done ‘in year’, so being aware of this is key.
The boxes at the top of an NHS payslip give us accountants information that we can use to check that you are being paid correctly.
The following boxes are important:
- Sal/wage – This should be reflective of the pay scale that you are currently on as a ten-programmed activity equivalent.
You should review if this is in line with the current pay scales to ensure you are receiving the correct salary.
- INC. date – This should be the date that you will move on to the next pay scale.
- Standard hrs – Often not your actual hours but the amount of programmed activity that you work.
Within the body of the payslip are more terms and abbreviations that can be confusing:
- Basic Pay – this is the pension-able amount of your basic pay;
- Additional Prog A NP – this is the non-pensionable amount of your basic pay;
- On Call – this is a percentage of your basic pay and is pensionable. Usually the ‘rate’ applied relates to the percentage paid.
Only the first ten programmed activities are pensionable. Therefore, on the payslip, the NHS will split the basic pay and additional programmed activity.
For example, if you work a job with 12 programmed activities, then the additional two will show as the non-pensionable amount. This can be checked back to your salary/wage figure and it is important to check regularly and especially if you have recently altered your job plan.
In addition, you may have a clinical director role or similar post. Depending on the role and the arrangement with the NHS trust, some of these roles are pensionable and some are not. These need reviewing on a case-by-case basis.
Clinical excellence awards
Local awards can be both pension-able and non-pensionable depending on when the award was achieved.
- If a local clinical excellence award was already being paid prior to April 2018, that same award remains pensionable after April 2018.
- If a current local award increases as a result of a points increase – i.e. from level 6 to level 7 – the increased amount is not pensionable.
- Any new local awards made from April 2018 are non-pensionable.
This can have the impact of local awards appearing as two separate headings on the payslip: one element being pensionable and one not pensionable. Understanding this will help when planning and preparing for annual allowance tax charges.
National awards have recently changed from the National Clinical Excellence Award (NCEA) scheme to the National Clinical Impact Award (NCIA) scheme. The new awards will be non-pensionable and there will be no for-mal renewal process.
To maintain the awards, a new application will need to be made. Awards paid to individuals working less than part-time will no longer be paid pro rata.
The value of the awards has also altered from:
- Platinum: £77,320;
- Gold: £59,477;
- Silver: £47,582;
- Bronze: £36,192;
- N3: £40,000;
- N2: £30,000;
- N1: £20,000;
- N0: £10,000 – only in Wales.
If you hold an existing pensionable NCEA, then you should be invited to renew this at the relevant renewal date. If you are successful, then the previous (higher) amount should be honoured and the total value will remain pensionable.
If your pensionable pay falls due to changes to clinical excellence awards, your 1995/2008 pension can be reduced. So, it is important to take professional advice in this area if you anticipate a reduction to your pensionable pay.
Salary sacrifice schemes offered by the trust can come in various forms, but arguably the most common in recent times would be for a vehicle lease under the NHS fleet scheme.
A salary sacrifice for a car is usually only tax-efficient if you are considering an electric or long-range hybrid car due to the way these cars are taxed on you personally.
Salary sacrifice schemes work by reducing your taxable and pensionable pay by the cost of the vehicle lease. You are then subject to a ‘benefit in kind’ tax.
The benefit in kind on cars is taken by multiplying the list price of the car by a percentage based on the CO2 emissions of the vehicle. Currently, electric cars and long-range hybrids have low percent-ages, which can make the scheme tax-efficient.
Doctors who have their own limited companies for private practice may be posed with the choice of a salary sacrifice or to use the limited company funds.
An initial thought process may be to think that the tax and superannuation savings would outweigh corporation tax savings. But it is important to consider the effects on your NHS pension and potentially annual allowance issues when you return the vehicle after the lease.
If you are considering an electric car and the NHS fleet scheme, you can obtain an example of how the salary sacrifice would impact your overall take-home pay and it is worth discussing the short- and long-term implications with a professional adviser.
Pension – tiered rates
The NHS pension has fixed tiered employee rates based on a member’s pensionable earnings. Unlike the tax rates, the rate is applied to all pensionable earnings rather than a stepped deduction being applied.
Most consultants will be paying either 13.5% or 14.5% pension contributions based on the scale of seven different tiered rates. This scale is changing from 1 October 2022 and then again from 1 October 2023.
The likelihood is that many consultants will pay pension contributions at a maximum rate of 13.5% from October 2022, drop-ping to 12.5% from October 2023.
Remember that tax relief on pension contributions is given at source, so please bear this in mind – your taxable pay will increase.
Underpayments of salary
Often, we encounter issues where a backdated underpayment based on a change in job plan or perhaps a delay in processing the jump in a pay scale has not been paid. This leads to a lump sum payment that can fall in a different tax year to the year it was earned.
HMRC treatment is to tax you in the period that the payment falls, regardless of which period it relates.
However, for pension purposes, the pensionable pay should be allocated according to the year the money was earned, which is in contrast to HMRC treatment.
If you have received backdated pay, then it is worth consulting a specialist accountant to ensure you have not been adversely affected.
You may be entitled to apply for some form of compensation, particularly if this has caused you to lose part of your tax-free allowance.
It is good practice to review your payslips regularly to ensure you have been paid correctly and so that no unexpected tax liabilities arise. Specialist medical accountancy advice can help to clarify these issues.
Written by Partner Richard Norbury for the Independent Practitioner Today July / August issue.