Are you missing these tax deductions?
This year, we’re supporting ATT’s Tax Awareness Week by highlighting a few tax deductions and reliefs that many people do not realise they can claim.
We often find that clients are paying more tax than they need to, simply because a relief has been overlooked or never discussed.
Here are several areas worth checking.
Business mileage
If you use your own car for work or business travel, you may be able to claim tax relief on your mileage.
HMRC’s approved mileage rates currently allow you to claim:
- 45p per mile for the first 10,000 business miles for cars and vans
- 25p per mile after that for cars and vans
- 24p per mile for motorbikes
You can also claim an extra 5p per mile if you take another director or employee in your own private car.
These rates only apply to business journeys, such as travelling from Birmingham to Manchester for a client meeting. Commuting between home and your normal workplace does not qualify.
Employees can claim tax relief if their employer does not reimburse mileage or pays less than the approved rate. To calculate the approved amount, multiply your business travel miles for the year by the rate per mile for your vehicle.
Self-employed individuals usually claim mileage as a business expense.
Keeping a simple mileage log can make this much easier when it comes to preparing your tax return.
Pension contributions
Pension contributions are still one of the most effective ways to reduce your tax bill.
When you pay into a pension, tax relief is applied at your highest rate of Income Tax.
A basic rate taxpayer who contributes to a pension receives 20 per cent tax relief. For example, if they want £100 in their pension, they only need to pay £80 because the government adds £20 in tax relief.
A higher rate taxpayer also gets the £20 basic tax relief added automatically, but they can claim an extra £20 through their tax return. This means that although £100 goes into their pension, it effectively only costs them £60.
Pension contributions can also help reduce your adjusted net income, which may preserve your personal allowance if your income is approaching £100,000.
Many people only think about pensions when planning for retirement. However, from a tax perspective, pensions can also provide valuable tax relief now, reducing the amount of tax you pay while you are still working, not just helping you save for retirement.
Marriage Allowance
Marriage Allowance is one of the most commonly missed reliefs.
If one partner earns less than the personal allowance (£12,570), they can transfer up to £1,260 of that allowance to their spouse or civil partner, provided the receiving partner is a basic rate taxpayer.
This can reduce the household tax bill by up to £252 per year. It may not seem like a lot, but every penny counts when you’re managing a tight household budget.
It often applies when one partner works part-time, is on parental leave or has temporarily stepped away from work.
If this reflects your current situation, get in touch to see if you are eligible.
Professional memberships and subscriptions
Memberships to certain professional bodies or trade unions may be tax-deductible if they are required for your work and you have had to pay out of pocket for them.
Examples can include industry bodies, regulatory organisations or professional associations.
The organisation must usually appear on HMRC’s approved list.
You can backdate claims for up to four years. If your employer paid for the subscription or membership, it will not be eligible.
These costs are often small individually but can add up over several years.
Uniforms and specialist work clothing
If your job requires you to wear a uniform or specialist clothing, you may be able to claim tax relief for cleaning, repairing or replacing it.
HMRC offers fixed allowances for many occupations, though claims can also be based on the actual costs involved.
This commonly applies to healthcare workers, tradespeople and certain public sector roles, but others may also be eligible.
Renting out a room in your home
If you rent out a furnished room in your home, you may qualify for Rent-a-Room Relief.
This allows up to £7,500 of rental income per year to be received tax-free, provided the conditions are met.
With rising housing costs, more households are taking in lodgers, yet many are unaware of this relief.
If you are renting out a room, or are thinking about it, get in touch and we will advise you on how you can reduce your tax bill.
Get advice on tax deductions
To make sure you are taking advantage of all the tax reliefs available to you, contact our experts.
A quick annual review of your circumstances can help make sure you are not paying more tax than necessary.
One of the best things you can do is to keep accurate records of all your income, expenses and contributions, making it easy to identify where tax reliefs can be applied.
If you are unsure whether any of the reliefs we’ve mentioned above apply to you, we are always happy to help.
