In recent years the Revenue have updated their computer systems and are able to tie up payroll returns to individual taxpayers much better. We’ve seen a large number of doctors in recent months who have not been required to complete tax returns, but who have received notifications of, usually, underpayments for past years which have come as a complete shock to them.
So what do you do if you receive one of these calculations? Either consult a professional – or if you feel confident that you can check it yourself, check it – do not just ignore it. Frequently it will be a case of a P45 not following correctly between employments, or concurrent employments not having been taxed correctly. If you have not made a claim for professional subscriptions now is the time to do so, as it will reduce an underpayment.
If you think you may fall within the ‘Bannerjee’ case – if you have a training contract, a training number and your employment is predominantly to train (rather than to practice medicine) – then you may be able to claim training costs.
You can avoid these shocks if you always check your code number – and always make sure that previous employments show on your P60 at the end of the year. Look at your total income (from all sources) and use tax tables on the Revenue website to check that the right amount of tax has been deducted – or seek professional assistance.
What if you have completed a tax return and the Revenue writes to you to say that they have reason to believe it is wrong?
We have come across this on several occasions recently. Usually it is where you cease an employment with one hospital or GP practice, then do a bit more work for them – which they treat as a separate employment, so one doesn’t appear on your P60. Normally on a P60 when you have changed jobs in a year you would see ‘previous employment’ details; where it is the same workplace, one might expect it to be correctly included, but if you have been set up with a different reference it won’t be. However, if you haven’t added up your income received to prove that everything is included correctly, the Revenue will not only charge you any back tax plus interest, they will also charge you a penalty ( a minimum of 15%) for a ‘careless’ return. If you have not responded quickly and helpfully to their enquiries then they are entitled to charge even higher penalties.
The moral of this story is to make sure you can tie up your earnings (probably paid direct into your bank account) with the total of your payslips and the figure that you put on your tax return.
Another source of unexpected tax demands: if you have previously had an underpayment of tax and it has been ‘coded out’ – that is a future code has been adjusted to collect an earlier debt – but then you stop being employed and become self-employed (as may well happen when you finish GP training and become a locum) – then the tax that would have been collected will need to be paid separately. It will normally show up on your self assessment – with a bigger figure being due than you would have expected based on your self- employed income.
Prepare for this by checking your code – and if there is an underpayment being collected in a year when you are not employed for the whole year, make sure you put some money aside to cover it when it falls due later.
So don’t assume your tax is correct just because you’ve been on PAYE – whether as a trainee or a salaried GP – you need to look to see if you have paid the right amount of tax each year, or risk an unpleasant surprise.
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 firstname.lastname@example.org.
This article forst appeared in the April/May 2012 NASGP Newsletter