The 80% Tax Trap Where Extra Work Doesn’t Pay More

[@silverwolf1234567899]

Loving the worked examples guys! Medics money are moving on to evidenced based tax planning too! More tax videos! More information on how contributing to a sipp will affect your taxable income, ideally with worked examples to account for AA and carry forward etc. a perfect video to put out before tax year end!

[@MedicsMoney]

More to come as we approach tax year end and the budget

[@DrDre999]

Thank you both for all you do. I'm currently in the sticky 100k situation (worked extremely hard this year, locummed my backside off) and have realised I'm gonna have to take the loss on the 80% tax because I can't afford to stick a large amount of money in my pension right now. My advice to anyone reading- work hard and do shifts, but plan your finances out well before the tax year ends or you'll end up with the same ballache as me 😅

[@MedicsMoney]

Thanks for sharing and sorry that this quirk of the UK tax system has chosen to reward your hard work with such a punitive tax rate!

[@moustafamortada]

Video discussed ways to reduce tax for those above £100k .. what’s the alternative of one can work more and go higher? Could you discuss the +£125k & +£140k?

[@sufyanpatel8257]

To be fair, I would not equate the £500 to one day of work in every example used

[@kuudjo]

Are fleet cars counted towards adjusted net income to keep you under 100k. I’ve heard mixed things on this. Thanks

[@sarvij32]

Thanks Tom and ED. Always hurts to be in a system which does not incentives more work in NHS. Thanks for your suggestion on what can be done to lower the income 100 K. What are your thoughts about NHS salary sacrifice schemes and is there a way of identifying how this will impact tax and long term NHS pensions.

[@MedicsMoney]

The NHS Pension website is clear on this..... “Salary sacrifice is giving up part of your salary to pay for something that might be offered by your workplace. This will reduce your pensionable pay as the amount sacrificed or used to pay for the items, is taken directly from your pay before pension contributions are calculated. Pension contributions are only paid on the remaining amount after the salary sacrifice amount has been deducted. For members of the 2015 Scheme, a reduction in gross pensionable pay will have a negative effect on the amount of pension built up in that year. The overall effect from taking any salary sacrifice would reduce the amount of final benefits earned.”

[@ro2778]

In example one, a junior doctor who does £500 extra work wouldn't pay more for their NHS pension

[@radutudoran8708]

Thank you for the video and rising awareness of this uneven taxation way. But, in the first two scenarios at least, you're not accounting for the long term benefits of 1) lowering student loan debt and 2) adding to the pension. Also the assumption that a doctor will also finish decorating to the same standard in the same amount of time as a professional decorator doesn't always hold true, if ever.

[@MedicsMoney]

Good points but.... Extra repayments on a student loan do not always mean reducing the debt. The student loan doesn't function like a normal debt - you pay 9% of income above £27,295 as repayments but this doesn't always lower the student loan debt. For many medical students today the student loan is more like a 9% tax for 30 years on earnings over £27,295! More infö on our student podcast www.medicsmoney.co.uk/what-medical-school-doesnt-teach-us/ Agreed re long term benefits of adding to the pension and agree for hospital doctors >10pa or >40 hours for juniors not usually pensionable - different for GPs tho 😉 Painting rooms is considerably easier than most things doctors do. Tommy painted his entire house including the office where this video was filmed. Maybe we should do a decoration top tips video including optimal dilution of mist coat and expensive matt emulsion v trade matt emulsion. Plus how to get a good finish on your skirting boards.

[@radutudoran8708]

@@MedicsMoney wow, I didn't knew that about the student loan! You are so funny and putting up fantastically useful content, thanks for that and keep up the good work! Looking forward to your "Doctors saving money decorating houses" edition 😀

[@shabeehassan867]

unrelated question : if you choose to leave the NHS and go work somewhere else. Can you still contribute towards NHS pension?

[@MedicsMoney]

No but your NHS pension may continue to grow. details here www.nhsbsa.nhs.uk/member-hub/leaving-or-taking-break-scheme

[@DarrenFoo]

Hi guys, just wanted to clarify something you mentioned at the end regarding reducing your "net adjusted income". Ed said that allowable deductions (like GMC fees etc) can reduce this and potentially reduce it under the magic £100k mark, however I cant seem to find anything about this on the HRMC website which only stated that gift aid and private pensions can be used to deduct and that personal allowances should not be deducted. Can I get some clarification? Cheers!

[@MedicsMoney]

Thanks for the question! The first step in working out the net adjusted income is to take the taxable income which is net income less any tax reliefs. The allowable deductions come off your employment income to get to the taxable income figure so it will end up reducing your net adjusted income. Hope that makes sense.

[@DrVamsikrishna]

At the end of video its mentioned that having an extra personal pension can be helpful but can cause issues with nhs pensions sometimes. Can you clarify please?

[@DrDre999]

It's really complicated and if you have an NHS pension you should get personalised advice about whether it's worth opening a private pension. It's to do with the annual allowance for tax free pension, and it's not straightforward with the NHS pension to work this out. If you exceed your annual allowance then you'll end up paying tax and it's not worth it. I'm not expert btw 😅 but I was in a similar position and thought it might be helpful

[@bahsm3nt]

Hey love your channel, wondering if you can help me. I'm full time locum atm, I'm picking up jobs wherever which can be multiple hospitals. How will this affect my tax? Getting paid from different trusts either via bank or via agency

[@robbiekerry4500]

Question re: example 1. As a consultant, our extras are not pensionable. In this scenario, of someone on the JD2016 contract, the extra £500 (presumably done as an internal locum) generated an additional pension contribution. Is this correct? Thanks for the video!

[@foyzo3673]

Any additional work I do above my 10 PA NHS contract isn’t pensionable I don’t think. I also think it’s less likely that a senior hospital doctor today would still have student loan repayments compared to a junior doctor.

[@robbiekerry4500]

@foyzo3673 exactly. If the guys are talking about doing £500 locum, whatever the seniority, it won't be pensionable.

[@robbiekerry4500]

So the tax (especially for example 3) will be much higher as there won't be a pension deduction. But their marginal tax rates are broadly correct.

[@wg144]

I thought it was rare for extra work to be pensionable? Certainly it is in secondary care.

[@naumanzakir8005]

I did not understand the donation calculations

[@MedicsMoney]

Around gift aid? It is complicated but this weeks email has more detail on this. www.medicsmoney.co.uk/join-medics-money/

👍

[@naumanzakir8005]

Tax Plus investing

[@MedicsMoney]

Our two favourite topics! More of this coming

[@swimijm]

If everyone thought like this all the doctors would be out of work. This is just an argument against progressive income tax. If the wealthiest in society aren't ok paying tax we can't have a national health service.

[@WestHej]

I'm sorry, the example in this video is completely disingenuous. Whilst demonstrating the marginal tax rate at increasing levels of income, this does not demonstrate at all whether it's worth hiring someone to do the painting for you or if you should do the work yourself. For that you must take look at how long the job takes and how much you earn per hour as a locum. If the number of hours it would've taken you to do the job yourself is more than the number of hours you'd have to work to earn the £500 then of course you would do your locum shift. Also, for junior doctors at least, it is wrong when it comes to pensionable income.