Tax Adjustments in UK

You might even be able to claim tax adjustments on the full cost of substantial equipment, such as a laptop/computer, if it's for work. Know what you miss out on!!
  • Author: Siva
  • Last updated: August 18, 2022
  • 4 Minutes
tax adjustments in UK payroll explained by Papershift

Have you ever wondered what a tax adjustment is? Are you confused about how to work one out? Whether you are employed or self-employed, working out your tax burden after adjustments can be stressful.

We’ve all heard terms, such as, tax adjustments, net income, income tax, personal allowance and so on… but what do they actually mean? But never fear because we are here. 

In this article, we will be answering the question: What is a tax adjustment, and how it affect your tax burden and net income? 

Let’s begin.

What is a tax adjustment? 

Tax adjustments are transactions that adjust the amount of “Tax Payable” by an individual to arrive at the correct tax liability that needs to be paid to the HMRC.

Tax adjustments often alter the tax code and Personal Allowance of an individual, increasing or decreasing the tax burden of the individual.

What is a Personal Allowance?

How much is the personal allowance?
Your personal allowance is an amount that you are allowed to earn before being taxed. The current personal allowance (2022) for most employees is £12,570, meaning they can earn up to this amount of money without paying tax. It’s important to note that even if they earn less than this, they might still be liable for National Insurance payments.

For example, Charlie works as a Finance Manager for a big company and earns £45,000 a year. £12,570, which is his personal allowance, will not be taxed. The remaining £32,430 will be taxed and payments spread over the 12 months of the tax year (April to April) or due at the end of the year if he is self-employed.

What are the two main types of tax adjustment?

There are two types of adjustments in the UK:

  1. Increasing adjustments, which increase how much tax burden an individual must pay for a reporting period.
  2. Decreasing adjustments, which decrease how much tax burden an individual must pay for a reporting period.

Examples of increasing adjustments

There are a variety of adjustments that can increase your tax burden in the UK if you are an individual or a company. These include:

  1. Payments from current or former spouses.
  2. Taxable credits, offsets, or refunds from the government.
  3. Rents received for accommodation that you own.
  4. Farm income.
  5. Income from certain prizes and awards.
  6. Capital gains.
  7. Unemployment allowance or other state benefit.
  8. Receiving a private or state pensions.
  9. Tax underpayments in previous years.

Examples of decreasing adjustments

There are a variety of adjustments that can decrease your tax burden in the UK if you are an individual or a company. These normally take the form of work-based costs and expenses and include:

  1. Cost of using a car for business.
  2. Cost of using your home as an office.
  3. Costs incurred from buying work uniform or protective equipment.
  4. Capital losses or deprecation in value of business assets.
  5. Losses from business ventures.
  6. Tax overpayments in previous years.
  7. Charitable donations that incur gift aid.

What if I am self-employed?

Self-employed individuals are well versed in the art of tax adjustments, mainly because they have to file their own tax returns each year.

Being self-employed requires an individual to keep track of all incomes and expenses (as well as proof) so details can be sent to the HMRC each year. Each piece of information added to the tax from is in effect a tax adjustment that will either increase or decrease the individuals tax burden.

What is adjusted net income?

Adjusted net income is the total income that can be taxed after your Personal Allowance has been removed as well as any other adjustments or tax reliefs. If you run a business and suffered losses (meaning your business has made no profit or lost money), this adjusted income could lead to the business incurring no tax liability for the year. 

What is a Tax Relief?

Tax relief is another name for tax adjustments that decrease an individual or companies tax burden. Tax relief can work in two ways, the first way is if your business incurs expenses, they will provide you with tax relief which means you pay less tax. The other form of tax relief is where you get tax back or have it repaid in a different way, such as into a private personal pension, for expenses that have designated tax relief.

Can I get a tax adjustment if I work from home?

Anybody who works from home may be eligible for tax relief because they are incurring household costs that they wouldn’t otherwise have. 

You can claim for every household bill separately but will have to prove how much of each bill was used for business purposes. This often entails breaking down the bills to the percentage of the house you use for business and then applying it to the cost of running the property. 

If you have been working from home, you can claim tax relief for:

  1. Gas and electricity bills
  2. Your metered water bills
  3. Cost of business phone calls

You might even be able to claim tax adjustments on the full cost of substantial equipment, such as a laptop/computer, which you purchase because you had to buy them to do your work. 

Work from home tax relief
From the 6th of April 2020, it’s possible to bypass the rigmarole of working out how much to claim for working from home altogether by using the Governments flat rate tax relief scheme. This allows those working from home to claim a flat fee £6 a week for using their home regardless of how much their bills were.
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In conclusion

We hope this guide has helped you to understand what tax adjustments are and how they affect you.  

For more useful workplace tips and guides, check out payroll and automation software solutions to make your business easier for you.

Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams :-)