Confused about how your payslip is made up? Our Client Services Director, Tom Slevin, lists some of the key figures and letters to take note of.
The 2022-23 tax year has seen several changes to the PAYE system, as well as changes to the NHS pension scheme that were introduced from 1 October 2022.
Understanding your payslip is as important as ever to work out if you are being paid correctly. Foundation dentists in England are currently paid £2,894 per month (£34,728 per annum). You should be checking that you are receiving the correct salary each month – there are still some foundation dentists receiving the previous year’s rate of salary and in the worst cases, the salary from two or more years ago. However, there are several deductions from your payslip each month, so the net pay you receive is less than this.
The amount of income tax you pay each month depends on several factors, including your tax code, if you have had another job in the 2022-23 tax year and whether you pay into the NHS pension scheme.
Your tax code states what your personal allowance is (the amount of income you can receive in the tax year without paying income tax) and how this should be applied across the tax year. This directly impacts how much income tax you pay each month.
The standard tax code for a UK resident is 1257L. You can add a 0 to the 1257 to determine your personal allowance for the year. The standard personal allowance for 2022-23 is £12,570 and so, most foundation dentists will have a tax code starting with 1257.
However, your tax code can differ if you have underpaid tax on a previous job in the same tax year, if you have any benefits in kind or if you have made a claim with HMRC to receive tax relief on your employment expenses.
The letter on your tax code tells your payroll provider how the personal allowance should be spread across the year.
L is the cumulative code, telling your employer that your income tax should be calculated in reference to your year-to-date salary and your share of the personal allowance to date.
The amount of tax you pay on your salary is then spread across the tax year.
You may also see other letters instead of L in your tax code, such as T (your tax code includes other calculations to work out your personal allowance) or X (this is the emergency tax code and your salary will be taxed on a month one basis instead of a year-to-date basis).
The rate of income tax you pay is then also dependent on your total taxable salary in the month.
Income tax rates in the UK are 20% (basic rate of income tax), 40% (higher rate of income tax) and 45% (additional rate of income tax). As a foundation dentist, your monthly salary of £2,894 is within the basic rate band. This means that after deduction of your personal allowance, the remaining salary is subject to income tax at 20%.
Foundation dentists are automatically enrolled into the NHS pension scheme. The pension scheme is voluntary and you can opt out.
If you are a member of the NHS pension scheme, you will pay into your NHS pension each month and the amount you pay is based on your salary.
For a foundation dentist, the NHS pension contribution rate was 9.3% until 30 September 2022. As your salary is £2,894, the NHS pension contribution each month before 30 September 2022 will be £269.14.
However, from 1 October 2022, the NHS pension contribution rates and tiers have changed. For foundation dentists, the NHS pension contribution rate will be 9.8%, resulting in the NHS pension contribution increasing to £283.61 per month.
NHS pension contributions are deducted from your gross salary before calculating how much income tax is due, resulting in someone paying into the NHS pension scheme paying less tax on their salary than someone not paying into the pension scheme.
National Insurance is a tax paid by employees, employers and the self-employed, and paying National Insurance entitles you to certain benefits, such as maternity allowance and the state pension.
Class one National Insurance is currently paid by employees.
National Insurance is calculated on a pay run basis (if you are paid monthly, the National Insurance is based on just that month’s salary and not on year-to-date figures like income tax) and is based on your gross salary before pension deductions. Unlike income tax, you do not pay less National Insurance when paying into the NHS pension scheme.
From 6 April 2022 to 5 July 2022, National Insurance was payable on your monthly salary above the primary threshold of £823 per month. From 6 July, the monthly primary threshold was increased from £823 to £1,048 per month.
Other aspects of your payslip
Your payslip will include other information, such as your National Insurance number and any student loan deductions made.
You should ensure the correct National Insurance number is on your payslip so the record of your National Insurance contributions is correctly allocated to your record.
Student loan deductions should only start to be deducted the tax year after you finish your first degree and once your practice has received a SL1 notice from HMRC.
Student loan deductions are based on your gross salary and paid at 9% of your salary above the student loan threshold.
If you have a plan one student loan, the monthly threshold is £1,682 per month, while the monthly threshold for plan two student loans is £2,274.
This article is featured in the November 2022 edition of Dentistry magazine (page 101).