Making the most of what you earn

Making the most of what you earn

Nine years of university, two degrees, a whopping great student loan, and a sunny elective later, I arrived bright eyed and bushy tailed for my first ‘proper job’. The thought of having money left over to save after student loans, bills, courses and exam fees were paid was a bit of a fantasy. By the time I reached ST3, I finally put my maths degree to some use and claimed back tax relief on some of the expenses that had accumulated over the years. How hard could it be, right? To my surprise, it wasn't actually that taxing at all. A few thousand pounds later (yes thousands!) from those five previous years of exams, memberships and course fees helped pay for a honeymoon. Here are some of the things I've learned along the way.

How to claim a tax rebate

It's easy. HMRC have developed an online Government Gateway [1]. You are eligible to apply for a P87 – ‘Claim Income tax relief for your employment expenses’. All you need to do is tot up your expenses for each tax year April-March (Table 1). Then access the gov.uk website and follow the questionnaire to work out if you are claiming less or more than £2500 per tax year. You will then need to create a Government Gateway ID and password. It usually takes 10 min (have your P60 and national insurance number handy). You will be asked for a PAYE tax reference from your employer (on your P45/P60). If you have moved NHS employers during each tax year, you may have to contact HMRC for these details if they're not readily available on your payslips. You can claim tax relief on the last five years of work-related expenses that have not been reimbursed elsewhere. Once you get the ball rolling, it is easier to keep on top of expenses in each tax year using a year-by-year P87.

If you claim under the £2500 threshold then the online PAYE form is easy to fill out. If you are claiming more than £2500 per year, it is advisable to employ the guidance of a tax accountant – but your rewards will potentially be greater. You must have paid tax on the earnings from your job in the year you are claiming for. You will get tax relief based on what you have spent and the rate at which you pay tax.

Top tips for financial wellbeing

I have become increasingly interested in pay, savings, and my financial wellbeing. It has helped that my husband is a financial advisor (conflict of interest declared here!). Here are some things he's taught me along the way.

Table 1

Examples of annual expenses:

• GMC
• RCoA
• Association of Anaesthetists
• BMA
• Medical Indemnity insurance
• Other faculty/college fees (a full list is available on the government website) 

Work-related expenses such as:

• Examination fees (including resits)
• Travel expenses (not already reimbursed by local deanery)
• Travel and overnight expenses
• Courses (there are some 'potentially allowable' courses that are approved as tax-deductible; check on an individual basis).

Finances These are dependent on personal circumstances - no two people are the same. Have a plan and think about protecting what you earn, saving for emergencies and your long-term financial well-being. What is your long-term picture? Your dream home, kids' university fees, holiday home abroad are more easily achieved with a strong commitment to your financial plan.

Emergency funds An emergency fund is vital. It is recommended that you keep 3-6 months of expenses in an easily accessible cash account, such as a savings account. However, holding excess cash above this level can be detrimental to your longterm financial health because of inflation. Inflation is the increase in the average price of goods. If your cash account (Cash ISA, Current Account, Savings Account) is not giving interest returns above inflation (1.4% in December 2019) your money will lose its buying power.

ISAs Individual Savings Accounts are a government-endorsed means of tax-free saving. You may have heard of Cash ISA, Stocks & Shares ISA, and Lifetime ISAs. You have the ability to save up to £20,000 per tax year across all ISA savings.

Cash ISA A savings account without any tax on the interest gained. A range of Cash ISAs are offered in banks, building societies, and credit unions – there are plenty on the market so shop around for the best rate. The downside is that they remain in cash, and interest returns may not keep pace with inflation.

Lifetime ISA The Lifetime ISA (LISA) lets you save up to £4000 every tax year towards a first home or your retirement, with the government giving you a 25% bonus on top (Table 2). A fantastic way to help first-time buyers onto the property market. Alternatively, if you are not a first-time buyer, a LISA can be used as a pension savings account, although it cannot be accessed until the age of 60.

Table 2

Stocks & Shares ISA An option that can prevent your money from losing its buying power is to invest in the stock market. Stocks & Shares ISAs give you the opportunity to achieve tax free growth. You must first understand the level of risk you are willing to take, the length of time you wish to invest and the desire you have for any investment growth. With risk comes the potential for reward. The higher the risk level you are willing to take, the higher the potential for growth. Markets can be volatile but with a long-term plan, it is possible to withstand the bumps in the road. Keep your emotions neutral. Remaining level-headed can be difficult, but emotional investing can have a negative impact on your objectives. There is no perfect time to invest and trying to ‘time’ when is good or bad is less profitable than ‘time in the market’. Seeking professional advice will allow an adviser to manage your fund and your expectations.

Insurance Insuring yourself and your health is the foundation of a strong financial plan and a way of protecting those you love. We all hope we plan for something that never happens, but we are all too aware of the unforeseen ahead. It is the same as your car insurance - you pay a monthly premium in the hope you never have an accident.

Life insurance Pays out a tax-free lump sum on death. It allows your family to continue their current standard of living. The sum assured can be used to repay any or all debts (mortgage, school fees, credit cards). The more you insure yourself for, the more expensive it will be. Again, everyone is different, and no two families have the same needs.

Critical illness cover Tax-free lump sum on diagnosis of specific critical illness (all providers offer different levels and areas covered). It is usually more expensive than life insurance and contains a ‘survival period’. It could provide money needed to clear debt or cover home amendments, healthcare costs, travel or any other associated costs.

Income Protection The NHS scheme provides a salary of six months full pay and then six months half pay if you are on long-term sick leave. After that you are unpaid. Income protection pays you a monthly predetermined sum, or up to a maximum percentage of your salary. It is deliberately designed not to pay you your full salary and to encourage getting back to work.

Eireann Allen
Elected Member Association of Anaesthetists Trainee Committee
ST6, South East Scotland

Conflict of interest declared: husband (Michael Allen) is a financial advisor.

Editorial note: this article is a guide only and not a substitute for professional advice; we remind readers that we take no responsibility for the contents or for any losses that result from the advice provided.

References 

1. GOV.UK. Claim tax relief for your job expenses, 2020. https://www.gov.uk/tax-relief-for-employees (accessed 28.02.2020).