Let’s have a look at a selection of questions we’ve been asked in the last few weeks:
Can you send me proof of earnings for my mortgage?
Simple question, not necessarily a simple answer!
If we have prepared your tax return for at least the last three years, we can produce a copy of the tax calculation from our system and a ‘year end review’ from HMRC’s system (to create a substitute SA302) – check they match ok and upload them to our secure portal for you to download.
However, if your mortgage broker wants 2018-19 figures, have you provided your information yet? Most mortgage companies won’t accept draft figures without HMRC calculations, so your accountant will need to complete your tax return (including locum income accounts), get it approved and submitted, and let it be captured by HMRC’s processes before the ‘SA302’ substitute can be provided.
HMRC used to provide SA302s but they do not like to do so now, as it can be done on-line, so a paper one can take several weeks to produce (after the return has been captured).
If you only have salaried income, your mortgage lender should accept your form P60 showing earnings (and tax deducted) for the year.
So if you are likely to need a new mortgage, plan in advance and make sure your affairs are up to date.
Is it worth me working some out of hours sessions?
This question came from someone with a salaried position 2 days a week, variable amounts of locum income and the new plan to do some out of hours work.
This isn’t something that an instinct can answer alone, so what needs to be considered?
Are you the higher earner of a couple with children claiming child benefit? The benefit is clawed back for taxable income between £50k and £60k, after which it is fully recovered. So generally earning between £50k and 60k is going to be expensive – how expensive depends on how many children you are claiming child benefit for.
Is your taxable income near £100k? For income levels between £100k and £125k your personal allowance is steadily taken away – leading to an effective rate of tax of 60% on income in that band. Also, at this level of income, tax free childcare is removed.
Is your taxable income close to £110k? Income over this level causes the pension allowance to be potentially reduced, so detailed calculations are needed to see if this creates a pension annual allowance charge. This tax is particularly tricky because it is a tax liability without any matching income. Yes, you can get the scheme to pay it, but the ‘debt’ increases much faster than inflation, and by retirement could, with hindsight, be an expensive route to have taken (but often there’s no choice because doctors don’t have the cash to pay the charge themselves).
Is your income close to £150k? Income over this is taxed at 45%. Note that taxable income is after pension deductions, not before.
Very often when we are asked this question, and we do the calculations, the answer is that it may be better for the spouse to earn more (if that is an option) and the client to keep their income under a particular limit. Sometimes the use of a limited company can be beneficial.
There’s no automatic answer – we have to look at the figures for the individual each time.
Why do you need pensions information?
Because if we have no details about your NHS (or indeed private) pension, we cannot calculate what your tax liabilities are, or whether there is a risk of an annual allowance charge that you need to plan for.
If you keep an eye on your pensionable income each year, ideally from the Total Rewards Statement, you will know if anything gets missed. Much easier to track it down promptly now, than in 30 years time when you start getting closer to retirement.
Do NHS pensions tell you if you’ve exceeded the tax allowance?
If you have exceeded the £40k allowance, which assumes that your record is up to date too, then yes, they will send you a Pension Savings Statement, eventually. However, if your record is not up to date or is incorrect, or if you are only entitled to a reduced allowance, or if you have a personal pension, NHS Pensions will not be aware of a potential charge and will only send a Pension Savings Statement if you ask for it.
My pensions record is incorrect and I can’t get it sorted.
We have had some good (if painful!) success at getting records updated, and we have contacts within the PCSE if all else fails. Generally, if you’ve tried and not succeeded, we can escalate your case through the complaints procedure to get it sorted for you. You will need to have retained details of pensionable earnings and contributions, usually this will be your Locum A & B forms and proof of payment, as well as payslips from employments.
Don’t forget that LocumDeck keeps all this data for you.
Why do you ask so many questions when you do my accounts and tax return?!
I can assure you we don’t ask questions for the fun of it! We want to get your return and accounts completed as quickly as we can. But we want to make sure that you are not paying more tax than you need to be, and equally that you are not making claims that cannot be substantiated and could give rise to interest and penalties if HMRC queried them.
Frequently we find that locums have pensioned some but not all of their income, and it can be tricky to work out what is and what isn’t pensioned on the Locum A forms, and whether the Locum A forms match the Locum B forms. We often see the employer contribution being paid to the locum, but the contributions (employee and employers) not being paid over properly.
If GPs have other general questions to which they would like answers here, do please drop us an email and we’ll see if we can include it in a future issue. Be aware though that it can only be a generic answer, and once the full facts are known, answers can be different! If it’s a question to which you need a specific answer, then please either contact your own specialised medical accountant, or ask us to take you on as a client.
Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at email@example.com.