Doctors lead busy lives, and it is fair to say that the UK’s tax system can be complicated and confusing. Understanding your tax code is important, however – as mistakes can prove costly. Dr Ed Cantelo of Medics’ Money explains what your tax code is, how to check it’s correct, and how to change it if you think it’s wrong.
Your tax code is calculated by HM Revenue and Customs (HMRC), and is used by your trust’s payroll to determine how much income tax you should pay. The tax code is made up of a number followed by a letter. At its most basic, it is simply the personal allowance divided by ten followed by the letter “L”.
Is my tax code correct?
If you have one job and no extra income or allowances altering the code, the current tax code for year 2019-20 should be 1250L, given that the current personal allowance is £12,500. You will also see the word “CUMU”, which means that you get a chunk of your personal allowance each month. Your tax code can be found on your payslip.
If you are a doctor on a tax code 1250L, you are receiving your full personal allowance. However, it is still very likely that you are paying too much tax – the reason being that you can claim a doctors’ tax rebate on professional expenses, such as GMC fees, indemnity insurance and Royal College fees. This can potentially save you 40% of any professional fees you pay.
Professional expenses that are tax deductible for doctors include:
- General Medical Council fees
- British Medical Association fees
- Royal College fees
- Medical Defence Union / Medical Protection Society fees
- Examination fees, including re-sits, if you are a trainee and you are required to pass these exams under your training contract. Note that exam fees can not be included in your tax code
You can make a claim for tax relief for your professional expenses online by setting up, and using, a Personal Tax Account. If you have not already done so, the step-by-step guide on the Medics’ Money website can help you through the process.
The wrong tax code
A big problem for doctors is that sometimes, HMRC may tell your payroll to apply the wrong tax code. As we switch jobs, say in August, we will usually receive a payslip from our old employer and our new employer, confusing HMRC into thinking that we are working two jobs. If they suspect this, they will apply code BR NONCUM which will automatically tax all income at the basic rate of tax (currently 20%) with no personal allowance at all, resulting in a higher income tax bill. Alternatively, doctors may see the tax code 0T NONCUM, a so-called “Emergency Tax Code”, which again applies the basic rate with no personal allowance deducted.
If your tax code is wrong, this could be a costly error: losing your tax-free personal allowance will inevitably result in higher tax bills until the tax code is corrected. We would thoroughly recommend keeping an eye on your tax code to ensure you are paying the right amount of tax.
Checking and changing your tax code online
You can find your tax code on your payslips, or you can check it using your Personal Tax Account (see the guide linked above). The steps below will guide you through how to check your tax code on your Personal Tax Account, and how to request that HMRC change it if you believe that your tax code is wrong.
Note that there are many reasons why someone may want to request a change to their tax code – this guide considers a case where the doctor is receiving an incorrect personal allowance because they currently have an “emergency tax code”.
To start, log onto your Personal Tax Account then follow the steps below. Please note that this pictures use slides for the tax year 2018-2019 as an example. The personal allowance was then £11,850, but as of 6 April 2019 it has been increased to £12,500.
Once you have filled in this box, you have the option to make other changes, for example if you have more incorrect tax allowances that you want to change. Once you are finished, the request will be sent to HMRC who will then consider the request, and if they agree, they will liaise with your payroll department to get your tax code changed.
Dr Ed Cantelo is a second year GP Trainee, a Chartered Accountant and a Chartered Tax Advisor. He is also a Director of Medics’ Money, a company set up to empower doctors to make better financial decisions.