Are you a salaried GP who is failing to claim valuable tax relief on expenses?
At a recent discussion session with a group of salaried GPs, I was surprised to discover that many were unaware that they could offset some of their professional expenses against tax.
They were literally losing out on hundreds of pounds each year by not claiming for their allowable expenses via their tax returns. For a typical three-session-per-week doctor, I reckon that the sum lost is around £500 a year while a full-time salaried GP will be losing much more.
However, if all your earnings are from salaried work, you may not receive an annual tax return, so may be unaware of the possible tax savings.
Some salaried doctors believe that only contractor GPs (partners and single-handed practitioners) or self-employed GPs such as locums can claim for expenses.
But salaried GPs do have tax-allowable expenses related to work, on which, if they are basic-rate taxpayers, they can claim 20 per cent relief (2008/9 tax year). If you pay higher-rate income tax, you can claim 40 per cent relief.
Tax law test
The test applied under tax law for whether an expense is allowable is narrower for employee GPs (and, indeed, for all salaried staff) than for the self-employed.
An employee can claim for expenses which are 'wholly, exclusively and necessarily' incurred because of their job, but only if the expenses concerned are not reimbursed by the employer or by any other agency.
In contrast, a self-employed person such as a GP partner or locum can claim for all expenses 'wholly and exclusively' incurred relating to their trade or profession.
The highest professional expense for a salaried GPs is usually their medical defence subscription, but other allowable expenses include membership of professional organisations such as the BMA and RCGP.
Commuting to and from your usual place of work is not an allowable expense. However, you can claim for any travel costs you incur on home visits to patients and on other work-connected journeys your employer requires you to make. Currently you can claim 40p per mile for motoring expenses. Eligible train travel or other transport costs can also be claimed.
Hang on to receipts in case of queries by HM Revenue & Customs (HMRC).
Claiming tax relief
You will need to complete a tax return. If you do not receive an annual return, contact your tax office and ask to be sent the form. Your employer can tell you which tax office this is and you can find contact details from HMRC's website (www.hmrc.gov.uk).
Tax returns can be downloaded from the site together with guidance notes on completing them, and they can be filed online. The online form will perform various calculations for you and you can save a PDF of the completed return.
While salaried GPs with high earnings and expenses might wish to employ an accountant, the tax return form is reasonably straightforward if you want to complete it yourself. If you have queries, HMRC has helpful advice lines. Or try your local HMRC Enquiry Centre.
Each year's return covers the previous tax year (running from 6 April in one calendar year to 5 April in the next). For example, the 2008 tax return is actually for the 2007/8 tax year ending 5 April 2008.
The deadline for filing a 2007/8 paper return is 31 October 2008. However, submitting a paper tax return after 30 September means that you, rather than HMRC, must calculate the tax (or tax relief) due. The deadline for submitting an online return is 31 January 2009.
If your expenses are reasonable, you will be given tax relief through your pay as you earn (PAYE) tax code which will be adjusted to deduct less tax.
If a large rebate is due, payment will be by post or into your bank account. Bear in mind you can go back up to six tax years to claim expenses, but this will mean more tax returns to complete.
Dr Phipps is a GP in Lincolnshire.
'Wholly, exclusively and necessarily'
- Salaried GPs can claim tax relief for expenses that are 'wholly, exclusively and necessarily' incurred in doing their job provided these are not refunded by the employer or any other agency.
- Expenses in connection with educational courses are not allowable. Your employer should pay for any necessary courses; otherwise the course is deemed unnecessary by HMRC and is therefore not allowable.
- Allowable expenses include medical defence subscriptions, membership of professional medical associations, for example the RCGP.
- Travelling expenses for visits to patients and other necessary work-related travel are allowable but commuting to/from your workplace is not.
- Replacing or repairing medical equipment required in your job is allowable, but the original purchase cost is not.
- Certain books and journals required for your job are allowable. Your tax office can tell you which these are.