This guest post is by TaxHelp for Older People, a charity offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321.
Do you use your own car for work, wear a uniform that you repair and clean yourself or have to buy your own specialist equipment like protective clothing? If yes read on, you may be able to claim tax relief. The form is simple and sometimes people can make a claim over the phone.
If you use your car for work you will probably be paid a mileage rate for doing so. If the amount you receive is below the tax free rates then you are allowed to claim back the difference between these rates and the amount you actually receive.
What are the tax free rates I hear you ask? An employee can receive 45p per mile for the first 10,000 miles and 25p per mile thereafter without having to worry about tax. If more than £8,000 is received in a tax year it becomes a taxable benefit and the employer should produce a form P11D at the end of the tax year. An example will better explain how it works.
Mrs H works as a carer and clocks up 24,000 miles a year. Her employer pays her 23p a mile and she hasn’t a clue if this taxable or not. She is allowed 10,000 miles at 45p and 14,000 miles at 25p, totaling £8,000 tax free, but she only gets 23p x 24,000, or a total of £5,520, and so she doesn’t have to worry about paying any more tax. But she can in fact claim tax relief on the difference between the two, which is £2,480. This is known as mileage relief and if Mrs H is a basic rate taxpayer she can claim tax relief at 20%, worth £496 for the year or an extra £41 per month. Well worth the effort!
Had Mrs H been paid say, 35p a mile, for all of the 24,000 miles she would have received £8,400 which is £400 over the tax free limit. In this case her employer would report the £400 to HMRC after the end of the tax year on form P11D and they would arrange to tax it, costing her £80.
The other tax reliefs that are worth knowing about are called flat rate expenses. If you work anywhere where you have to wear a uniform, or protective clothing that you repair and clean or replace yourself or you have to buy, maintain or replace specialist tools to do your work you will be entitled to them. The rates differ depending on the industry you are in and are calculated to cover what is typically spent each year by an employee in the different trades.
For example, Mrs H is expected to wear a uniform when she is working and which she is expected to look after. This means that she can ask HMRC for a flat rate expense of £60. It sounds really good, but in cash terms she will only receive the tax relief of £12 (£60 x 20%), still enough to pay for the soap powder. Had Mrs H been a cabinet maker she would have been able to claim £140.
The first time you claim a flat rate expense you need to put it in writing to HMRC, you can use form P87. For future years and if the amount you are claiming is under £1,000 you should be able to claim over the phone. If the claim is over £1,000 but under £2,500 you use form P87 and for claims over £2,500 you have to be in Self Assessment.
This article is by Tax Help for Older People (operated by registered charity no 1102276), offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066