What are tax breaks?
Tax rebates, tax refunds, tax breaks it’s all similar stuff about one thing: only paying the tax that you need to. Find out what tax breaks you are entitled to as a self employed person, a sole trader, a director or a manager of a company.
Tax Rebate Services’ guides give you all the information you need.
Tax breaks come in different forms and often go unclaimed because people don’t know about them. Because of this is millions of taxpayers’ pounds are sitting in HMRC’s account waiting for their rightful owner, you, to reclaim them.
Here is a simple summary of the most common tax breaks that go unclaimed:
Professional subscriptions and Trade Union membership fees
Each professional organisation and Trade Union has to negotiate its own deal with HMRC to secure tax relief for its members. You can use our professional fees directory to check the ones you belong to. Obviously, the journal or organisation itself must directly relate to your work. This tax relief does not apply to life memberships or if a third party pays the amount on your behalf.
Tax Code Allowances
The tax office has a long list of what they call flat rate expenses. They are fixed amounts which exist to cover the cost of things like uniform washing and hand tools bought for work.
After an initial flat rate expense claim you should get a new tax code. This writes in these work expenses and continues these tax breaks into the future. Any changes made to your tax code will be sent to you in a PAYE Coding Notice that you will receive in the mail.
Travel tax breaks
The simplest part of the travel allowances and reliefs rules is what you cannot claim for – your daily commute from home to a ‘permanent’ place of work.
You are allowed to claim travel expenses if:
- you have a ‘temporary’ workplace (somewhere you work for less than 24 months) or;
- you have to make an out of the ordinary journey for work (e.g. travel to mandatory CPD course).
Potential travel expenses can include: taxi fares, bus/train tickets, toll charges, airfares and mileage.
Subsistence tax relief
Generally speaking food is not classed as tax deductible because, as HMRC sees it, “everyone must eat to live” (it’s not something you just have to do for work). This includes breakfast/lunch meetings with clients that you pay for.
BUT there are exceptions when you have to do something for your work that is out with your usual routine.
For example, if you are sent on a mandatory training day. Or, if you are a freelance illustrator that usually works from home, you could reasonably claim for the food and beverages you consume when you go to a work-related conference.
The key word with HMRC is always “reasonable” yes, afternoon tea at The Savoy would be considered ‘unreasonable’.
Subsistence also covers reasonable accommodation costs if your business trip necessitates that you stay away from home.
Working from home tax breaks
The most noteworthy element of this rule is that your job must require you to work from home, not that you simply prefer to work there. This can be evidenced by your employment contract or a supporting letter from your employer.
It can include a proportionate amount of your household expenses, like utilities and work phone calls. The same goes for things like phone line rental and broadband, as they are both personal and business costs. It does not include mortgage or rent payments because they are items you would be paying whether you were working or just living at home.
Claims up to £6.00 per week do not require any evidence; those over £6.00 will need the relevant documents to support your claim.
Pension tax breaks
All taxpayers are allowed to reclaim the tax on their private pension contributions at the highest rate of tax they pay. Most of us get the 20% tax relief automatically but, if you are in the 40% or 45% tax brackets, you have to claim the extra yourself.
Loads of Higher and Additional rate taxpayers don’t realise and are missing out on 20-25% tax relief on their pension contributions. Don’t let that be you.
Married Persons Allowance
If you are in a civil partnership or marriage, you may be able to take advantage of the Married Persons Allowance. One of you must be earning between £0 and £11,000; the other between £11,001 and £43,000.
The lowest earner of the two can transfer £1,100 of Personal Allowance to the higher earner, saving them (and you as a couple) £220 per tax year. This is still applicable if you live abroad or are getting your pension, as long as you meet the other criteria.
Claiming your tax break
On first read, HMRC’s guidance on which work expenses are allowable for tax relief seems pretty clear – the item must be “wholly and exclusively” for work purposes, for example a car mechanic buying tools and toolboxes to be able to work in a garage.
It is only when you start to dig deeper that the many confusing if’s, and’s or but’s reveal themselves. HMRC’s regulations try to encompass every possible employment situation and therefore include many exceptions, clarifications and proportional calculations. These are also changed and updated on a regular basis.
We’ve mentioned just some of the tax breaks that many hardworking taxpayers miss out on, just because they don’t have specialist knowledge. It is worth investigating exactly which tax reliefs and allowances apply to your personal work situation and we are always ready to help with both the obvious and the more obscure.
