Income tax in the UK can be a difficult topic to understand. With tax rates and codes clouding the subject, it’s understandable that many employers and employees find themselves confused. On top of this are the many tax deductions that an employee can use to reduce their tax burden.
But what are tax deductions and how do they affect tax codes and tax rates? This expert guide aims to answer these questions and more.
What are tax-deductible expenses?
Certain job-related expenses can be claimed as a tax relief for the amounts you’ve paid out. This applies both where:
- You have paid the expenses yourself without any reimbursement.
- Your employer reimbursed the expense, but you were taxed on the reimbursement.
Getting tax relief essentially means that the tax you’d usually be charged on an item is removed. This isn’t the same as getting an item for free.
For example – if you pay basic rate tax and buy something for work for £100, you can claim for £20 relief. This is the standard 20% tax that you would have paid HMRC if you had earned the £100 and kept it without buying a work expense.
What types of things can I claim a tax deduction on?
As a general rule, you’re only allowed to claim a tax deduction for an items or services you’ve bought ‘wholly and exclusively’ for use in your job.
Is there a time limit to how long I have to claim a tax deduction?
You must keep records of what you’ve spent (i.e., receipts), and claim the tax deduction within four years of the end of the tax year that you spent the money in.
Can I claim tax relief through PAYE?
It’s possible for HMRC to adjust your tax code so that you pay less income tax through PAYE. This will allow you to take home a larger proportion of your salary and therefore get your expenses paid back in increments.
To qualify for this, you must:
- Pay tax through Pay As You Earn (PAYE).
- Have not filled out a self-assessment form for the tax year in question.
- Be owed less than £2,500 in deductions.
You can check online to see if you’re eligible to claim and can apply for tax relief through PAYE on the gov.uk website.
Or try the HMRC Paye calculator free online below –
Can I claim tax relief through a self-assessment tax return?
Yes, you can. If you usually have to fill out a self-assessment tax return, you must use this to claim tax relief on expenses. This is most commonly done by those who are self-employed.
You must also use a self-assessment tax return if you’re claiming for over £2,500 in tax relief.
What can I claim as a tax deduction?
There are many business expenses that you can claim tax relief on. These include:
Reimbursement for business travel
Employees can claim for the mileage that they have not been reimbursed for if they use their own car or a company car for work. This is up to the HMRC approved mileage allowance. For current rates and allowances, check out the www.gov.uk.
You can’t claim tax relief on mileage used commuting between your home and your normal workplace, but you might be able to claim on journeys to a temporary workplace.
Expenses on business trips
You can claim for reasonable expenses encountered during business trips. These include:
- Public transport costs.
- Overnight accommodation costs.
- Food and drink costs.
- Congestion charges and tolls that have been paid.
- Parking fees paid.
- Business phone calls, fax and photocopying costs for work purposes.
- Uniform and equipment bought for work purposes.
If these expenses have been reimbursed by your employer, you’ll only be able to claim them if the reimbursement was taxed.
Work uniform expenses
You can’t claim for the initial cost of buying a uniform. This is considered a necessary cost for an employee and cannot receive tax relief. You can, however, claim tax relief for the cleaning, repairing or replacing of protective clothing and uniform necessary for your job.
In some cases, HMRC has agreed that workers in particular occupations can deduct a flat-rate allowance. These are often for those who work in safety critical industries. These include:
- Agricultural workers.
- Airline pilots and cabin crew.
- Firefighters, police officers and healthcare staff in the NHS.
- Prison staff.
For full details of which occupations can claim flat rate allowances, check out the governments website.
Membership fees and expenses
Fees and subscriptions to some professional bodies are eligible for tax relief if membership is necessary for you to do your job. For the membership to be eligible the body must be on the list approved by HMRC.
There are some situations where you can’t claim back fees or subscriptions. These include:
- Lifetime membership subscriptions.
- Fees or subscriptions you haven’t paid for yourself – for example, if your employer has paid for them.
Tax relief if you work from home
You may be able to claim tax relief on some of the expenses incurred as a result of working from home. This can be for things like:
- Telephone and broadband costs.
You can only claim for the things that are directly related to work, and not for those that might relate to both personal and work use – such as rent, unless the building is solely used for work purposes.
In all cases you will need to state how much of each bill is used for work purposes. For example, you might use one room in your property that takes up 20% of your home space for work purposes. As a result, you can only claim tax relief for 20% of the costs of the whole building.
The Government also allows workers to claim a flat rate deduction for working from home if this is easier (and more cost effective) for them. This is currently £6 a week and to claim it you will not need to keep evidence of costs.
In the UK the topic of tax deductions is a thorny one with many employers and employees often not understanding their rights. But with a little hope from this guide, we now hope you find the topic easier to understand.