With Christmas leaving bank balances diminished and the self assessment deadline approaching, it may be in your interest to consider claiming income tax relief.
In this week’s blog post we will introduce you to some of the key information for available income tax reliefs.
What Is Tax Relief?
‘Tax relief’ means that you either:
- pay less tax to take account of money you’ve spent on specific things, like business expenses if you’re self-employed
- get tax back or get it repaid in another way, like into a personal pension
You get some types of tax relief automatically – but some you must apply for.
When You Can Get Tax Relief
Tax relief applies to pension contributions, charity donations, maintenance payments and time spent working on a ship outside the UK.
It also applies to work or business expenses – you may be able to:
- get tax relief on what you spend running your business if you’re self-employed (a sole trader or partner in a partnership)
- claim tax relief if you’re employed and you use your own money for travel and things that you must buy for your job
Tax relief is automatically claimed when your::
- employer takes workplace pension contributions out of your pay before deducting Income Tax
- pension provider claims tax relief for you at a rate of 20% and adds it to your pension pot (‘relief at source’)
(You get relief at source in all personal and stakeholder pensions, and some workplace pensions.)
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 (relief at source)
- your pension scheme isn’t set up for automatic tax relief
- someone else pays into your pension
If you pay income tax at rates above 20% you can claim tax relief on the extra percentage (For example if you pay income tax at 40%, you can claim tax relief on the extra 20%) in your self assessment tax return.
If your pension scheme isn’t set up for automatic tax relief you can claim tax relief in your self assessment tax return but you can’t claim tax relief if your pension provider isn’t registered with HMRC.
Donations to charity from individuals are tax-free. You can get tax relief if you donate through Gift Aid or straight from your wages or pension (Payroll Giving)
Charities and community amateur sports clubs registered with HMRC can claim back the tax you’ve already paid on your donation through Gift Aid and if you pay a rate of tax above 20%, you can claim back the difference between the tax you’ve paid on the donation and what the charity got back when you fill in your Self Assessment tax return.
Payroll Giving schemes
If your employer or pension provider offers a Payroll Giving scheme, any donations you give through the scheme will be taken before Income Tax is taken off, howver, you’ll still pay National Insurance contributions on the amount of your donation.
Maintenance Payments Relief is worth 10% of the maintenance you pay to your ex-spouse or civil partner (up to a maximum of £322) and can be claimed if all of the following apply:
- either of you were born before 6 April 1935
- you’re paying maintenance under a court order after the relationship has ended
- the payments are for the maintenance of your ex-spouse or former civil partner (provided they aren’t now remarried or in a new civil partnership) or for your children who are under 21
Tax relief for Employees
You may be able to claim tax relief if you have to use your own money to pay for travel or other work expenses, however, how much you can claim depends on the rate you pay tax. (Example: If you spent £60 and pay tax at a rate of 20%, the tax relief you can claim is £12.).
You can only claim relief for expenses which are solely for work and have been purchased within the last 4 years (records must have been kept), but please bear in mind that you can not claim tax relief if your employer has provided an alternative or reimbursed you for the expenses.
Note: If you don’t fill in a Self Assessment tax return, you will need to contact HMRC to claim any of the mentioned tax reliefs