The Tax system in the UK and the NHS junior doctors
This post is for junior doctors who start in the UK and get confused about the tax system. I will try and clarify some from the best of my knowledge which can be wrong as well.
(Remember this is a simplistic explanation of tax system focused on new IMGs who have single jobs and a bit of locum)
What is the tax year in the UK?
The tax year runs from April to April every year.
What is the rate of Tax in the UK?
The amount of tax you pay is dependent on the total salary.
The first £12,750 is tax-free (known as personal allowance)
£12,571 to £50,270 = 20% Tax
£50,271 to £125,140= 40% tax
over £125,140 = 45% tax
Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. You do not get a Personal Allowance on taxable income over £125,140.
What are the mistakes doctors make?
Often people do not check their tax code and pay the wrong tax which can lead to a tax bill following the tax year finishing.
Some people get two pay slips when they are doing locums and do not check the second slip for tax code, either paying too much or too little tax.
How do I check if my tax code is right or wrong?
If you google your tax code, you will see if this is standard code or emergency or basic tax rate code.
Tax codes are explained on this link
Who can correct my tax code?
Only HMRC can give you the right tax code
Your HR or payroll has no power to change the tax code
How do I contact HMRC and what will they ask me?
You can contact HMRC by making a personal tax account, can webchat or via the phone
HMRC on the phone will ask you for your personal details and national insurance number to confirm who you are. They will ask you for the total estimated income for that year. Based on that they will issue you a new tax code.
If you are doing locums, you can tell them your total salary and a rough estimate of how much you anticipate earning from locums.
When does the tax code change?
Usually when you change jobs or start a new job or at the start of tax year.
If you are doing locums and getting a separate pay slip, you may find a different tax code on your pay slip.
Some people say, there are no benefits of doing locums as all the money is taken out by the HMRC?
This is the wrong impression. People end up in situations like paying 20% tax all year of locum where they should have paid 40% and when they get a tax bill, they will curse the system and tell everyone that all the money was taken by the HMRC.
What if I paid too much tax or too little tax?
At the end of the tax year, HMRC computers will do the calculations for the previous year and will tell you if you paid too much or too little tax.
If you paid extra, they will return your money.
If you paid too little, they can adjust the tax code for next year and slowly get money from you or give you other options.
I was taxed less when I started the job but now from April, I am taxed more, why?
Tax is dependent on annual income, so if you start mid-way through the tax year, you will be in the lower band of tax as your total income is less but with the new tax year, your band will go higher.
As an example, if you started the job in Jan, your salary from Jan, Feb and March could be totally tax-free as you have not reached the top of your personal allowance which is £12,750.
The new tax year will come with a new tax code where you will be taxed from the start of the year and personal allowance and 20% tax will be adjusted on a monthly basis from the start.
It is a wrong impression that we will first get tax-free £12,750 and then the government will tax us if we are at the start of the tax year.
Is tax different for Locum and normal pay?
Tax is on annual income not on particular slips separate.
Like if you are in the 40% top band in your normal job, all the locums you will do will be 40% taxed.
Can I claim some tax back?
Yes, you should as a doctor claim tax back on certain things, this can be done via an online HMRC account or via paper form.
Read this blog by Dr Omar Alam
What are the Scams?
There are many scams and I personally know 3 different IMGs who were scammed by phone calls.
You can receive a tax, email or phone call, people calming that they are HMRC and you paid the wrong tax, immediately share personal and bank account details or pay, otherwise face jail.
HMRC or government will never call you and treat you like this.
HMRC is dealing with billions of ££ in taxes, they don’t have time to call and threaten someone for a few hundred pounds and that is also in a foreign accent.
Is there a way to dodge the tax system?
Some people claim they know an accountant who can save you taxes by doing shady stuff.
Remember, paying the correct tax is your responsibility and if you are caught deliberately doing tax fraud, that can affect your visa.
Innocent mistakes like the wrong tax code are not a crime and will be adjusted. But if you tried to manipulate or lie to the tax system, that can get you in serious trouble.