What are tax reliefs?
Your tax bill is based upon the gross income you earn during the tax year (or turnover, if you are self employed), after any tax free allowances or deductions have been taken into consideration. Allowances and deductions can include the tax free personal allowance, married couple’s allowance etc., which reduce your tax bill. Deductions include benefit in kind charges and other reductions in your allowances, which increase your tax bill.
The final tax due figure can be reduced further by claiming tax relief on expenses you incur as part of your employment (or business, if self employed).
Pension contributions should not have (up to limits) tax deducted against them – so if you are 20 percent taxpayer and make a £100 pension contribution, you should have a tax bill reduction of £20 – this can be either through an extra £20 added to the contribution by the Government (private pensions) or by reducing your tax bill at source (your gross income is reduced by the size of the pension contribution for tax purposes).
If you are a higher rate or top rate taxpayer paying into a private pension plan, any higher rate tax relief (that is the difference between the lower 20 percent tax band and upper 40, 45 or 50 percent tax bands) must be claimed through your tax return. Surprisingly, some people forget to do this.
When it come to charitable contributions, you can either make a post-tax payment and have the charity automatically claim the basic rate (20 percent) tax back – but once again if you are a higher rate taxpayer, higher rate claims need to be detailed in your tax return. You can opt to pay charities directly through your payroll and therefore receive the reduction in tax directly.
Most employees will generally associate tax reliefs with pension contributions or charity contributions – but there are further reliefs claimable.
Depending upon strict rules on why the expense was incurred, money spent to facilitate getting your job done can be taken off your gross income before tax is calculated.
We developed our Tax Relief and Expenses Calculator to allow you to get a quick estimate of the difference any allowable expenses can make to your tax bill – from up to four tax years in the past to the current tax year (as these are the limits on making claims). The reasoning behind this is to allow people to weigh up whether it is worth chasing unclaimed tax relief up with tax professionals as making a claim can be lengthy and strict.
By splitting all HMRC’s rules for work related expenses in to categories, with guidance and linking it to our calculation system, you can quickly add up your possible work spending and see the difference it could make.
Continue to the next page to learn more about the types of expenses allowable for tax relief.