I have just read your front-page article in Pulse on pensions and take-home pay, but I don’t understand the figures.
You say that a GP earning £110,000 would pay £24,750 superannuation and £44,000 tax, leaving just £41,250 take-home pay. Since the superannuation is first deducted from your gross pay before calculating tax, this leaves £110,000 minus £24,750 as the taxable income – in other words, £85,250.
Taking a rough figure of £3,000 for Class 4 national insurance, that leaves £41,000 as the actual tax. That means 48% of £85,250 is being paid as tax. This is clearly not correct.
Please explain the figures!
From Dr Susan Salkind, Islington, north London
Your headline article on 20 April states accountants have calculated that under the new changes, a GP on £110,000 may take home less than £34,000 after deductions. Richard Hoey, in his editorial, states ‘these figures are so bad, at first glance they look like they must be wrong’.
I am no accountant nor a tax expert, just a jobbing GP, but I can certainly see a glaring error in the way the figures are presented.
A GP earning £110,000 with a superannuation bill of £32,000 will have a taxable income of £78,000. This gives a tax and national insurance bill of approximately £24,000, not £44,000 as stated in your article. This gives a take-home pay of £54,000, not £34,000 as your headline implies.
From Dr Nicholas Posner, Newcastle upon Tyne
Thanks for your letters. Dodd & Co provided Pulse with broad-brush calculations designed to illustrate the impact of planned rises in pension contributions across the profession. The figures were compiled at short notice in response to the BMA’s claims that contributions were set to rise to 15.5%, and were not intended to provide a precise picture or capture exactly what would happen with an individual GP’s income.
A number of questions have been raised over our presentation of their calculations for a GP on £110,000, and we might have done better to avoid a specific example like this. But we also ran Dodd & Co’s estimate that GP take-home pay would fall by a fifth by a number of other accountants, who confirmed it broadly matched their assessment.
Indeed, our estimate of a 19% fall is conservative compared with some you may have seen elsewhere. You’re right to pick us up on the details, but unfortunately the thrust of the story is correct.