Are you an employee who often pays out of pocket for work-related expenses?
Or a sole trader or director wondering if you’re making the most out of your expense deductions?
Yes, you can claim tax relief in any of these cases. All taxpayers in the UK are entitled to deduct certain allowable expenses from their tax bills.
With a few simple steps, you can ensure you’re getting back what’s rightfully yours. Let’s explore how to maximise your tax refunds.
Understanding Eligible Expenses
The first step in claiming your tax refund is understanding what counts as a work-related expense.
Many people don’t realise that all forms of employees can claim expenses in some situations, including those on PAYE.
For all categories of taxpayers – employees, the self-employed, or company directors – the primary rule remains the same: expenses must be exclusively for work purposes to qualify for tax relief.
This means these expenses should be necessary for your job functions, not personal use.
- Employee Expenses: Employees can claim tax relief on specific work-related expenses. This includes uniforms, specialist clothing, and necessary tools for the job. Expenses incurred for cleaning, repairing, or replacing these items are eligible for claims. Work-related travel expenses, such as mileage, overnight accommodation (excluding regular commuting costs), and mandatory professional subscriptions and fees can also be claimed. View the government guide on how to do this here.
- Self-Employed Individual Expenses: The self-employed have a wider scope for deductible expenses. They can deduct costs for office supplies, business-related travel, home office maintenance, marketing, legal fees, and business insurance premiums. Detailed record-keeping of all expenses and receipts is crucial for this group. This is reported on a self-assessment tax return.
- Company Director Expenses: Allowable expenses include home office costs, business travel, and entertainment expenses. It’s important to note that there are strict regulations regarding ‘benefit in kind’ taxes, making it imperative that directors seek advice from tax professionals to ensure they remain compliant. This is reported on a self-assessment tax return.
- Business Expenses: Businesses can claim expenses on a wide variety of costs related to their business, from buying stock to paying for utilities and paying for physical premises and digital costs like website hosting and marketing. These are reported on a Corporation Tax bill.
How Far Back Can You Claim?
Did you know you can claim tax relief on expenses incurred up to four years ago as an employee?
However, if you miss the four-year window, you might lose the opportunity to claim your refund for that year.
Are You Eligible?
To claim tax relief as an employee, you should have incurred the expense without reimbursement from your employer.
The amount of refund tax relief HMRC will pay depends on the rate of tax you pay. For instance, if you’re in the 20% tax bracket and claim an expense of £100, your tax relief would be £20.
Keeping Records
Maintaining a record of your expenses is crucial. Keep your receipts or bank statements as proof of your spending.
HMRC may process your refund initially but can later verify the accuracy of your claim. You might have to return the refund if your claim is found incorrect.
Final Thoughts
While self-employed individuals and directors may be used to claiming business expenses, claiming tax relief on work-related expenses is a right that many employees overlook.
You can maximise your tax refund by keeping track of your eligible expenses, understanding the rules, and submitting your claim correctly.
Contact Hugh Davies & Co for more information on how to account for expenses and ensure the right deductions are made, whether you’re an employee, director or self-employed.