Tax relief is a legal incentive or system that allows you to pay less income tax. It is open to all UK taxpayers, and designed to help you keep more of your earnings. There are various types of tax relief UK wide, and it’s important to know what they are and how to claim them so that you don’t pay more than you need to.
What is tax relief and how can I claim it?
When you claim tax relief, you can either reclaim it as a tax rebate from past tax years; or pay less tax going forward by claiming tax relief on the things you pay for in order to do your job.
Tax relief for employment expenses, such as working from home tax relief, allows you to claim tax back on the things you’ve had to buy or lay out for as part of your job. Claims can be backdated for the past four tax years.
What are the different types of tax relief?
For employees on PAYE, some of the most common types of tax relief include:
Mileage tax relief
If you use your own vehicle for work, then you can make a claim for tax relief. This only applies, however, if you are travelling to temporary places of work.
Company car tax relief
If you run a company vehicle but pay for your own fuel and are not reimbursed by your employer for business miles, then you will usually be able to claim company car tax relief.
Tax relief on public transport
You can claim for the costs of public transport you incur if you use it to travel to temporary workplaces.
Tax relief on professional fees
If you pay for subscriptions or pay fees to professional bodies or trade unions, then it is sometimes possible to reclaim tax on some of those fees, but only those which are allowable by HMRC, and only if the membership is a necessity or it is helpful for your job.
Tax relief on tools
If you need to buy tools or equipment for your job, then you can claim for any expenses incurred. There are usually two ways to do this.
One is through your tax code. Many industries have an agreed allowance which can be claimed through PAYE. You won’t need any receipts, and the value of the allowance will vary depending on the industry sector.
The other is through capital allowances. These allow for tax relief on the full cost of your tools. You’ll need receipts or a statement showing proof of purchase. Capital allowance claims usually allow for a significantly higher tax rebate than the PAYE method.
Uniform or protective clothing tax relief
Uniform tax relief can be claimed if you wear a uniform or protective clothing for work. The tax covers your costs for washing and maintenance of the clothing and there is a set amount per tax year, known as a flat rate expense, that you are allowed to claim.
Working from home tax relief
If you work from home, you can claim working from home tax relief to cover the costs of household expenses such as utilities and telephone and internet. Mortgage or rental payments do not qualify.
Pension tax relief
You can get pension tax relief on private pension contributions worth up to 100% of your annual earnings. The tax relief is paid automatically if your employer takes workplace pension contributions out of your pay before deducting Income Tax. If you pay Income Tax at a rate of 20%, then your pension provider will claim it as tax relief and add it to your pension pot. This is known as ‘relief at source’.
UK pension tax relief is also available on contributions made to certain types of overseas pension schemes.
It is important to ensure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings. HMRC can ask you to repay anything over this limit.
How to claim pension tax relief? You may be able to claim tax relief on pension contributions if you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you. You may also be able to claim if your pension scheme is not set up for automatic tax relief, or if someone else pays into your pension on your behalf.
You can also claim additional pension tax relief on your Self-Assessment tax return for contributions made into a private pension at a rate of 20% up to the amount of any income you have paid 40% tax on, or 25% up to the amount of any income you have paid 45% tax on.
Can I claim tax relief on mortgage interest UK?
Mortgage tax relief allowed landlords to deduct mortgage expenses from their rental income in order to reduce their tax bills.
However, since April 2020, this tax relief has not been available, having been replaced with a tax credit based on 20% of the mortgage interest payments. This is a less generous system than previously, which effectively provided tax relief of 40% on mortgage payments.
The current system means that higher or additional-rate taxpayers are no longer able to reclaim the tax on their mortgage repayments, as the credit only refunds tax at the basic 20% rate, rather than the top rate of tax paid.
Looking for tax relief advice?
It is essential that you take advice from an independent tax adviser who has the expertise to look at the the bigger picture when claiming tax relief. The adviser can consult with your accountant to make sure all angles are covered, and you are optimising the tax relief opportunities that are open to you.
Here at Partridge Muir & Warren, we have an in-house team of tax advisers, financial planners and legal specialists ready to provide you with the advice you need to reduce your costs and maximise your income.
To learn more about how we can assist you, please get in touch.