There are many reasons why a self-employed person may be due a tax refund. Most people are surprised when they receive a tax refund from HMRC. If your tax affairs are handled properly by a professional, then this should not be the case. If you don’t know why you have received a rebate, then contact an expert today to handle your affairs.
Did you know that up to a third of employees pay too much in tax to HMRC? Read on…
Many people work from home these days, so it is important to claim for its use as an office. For self-employed workers, there are two ways of claiming the expense of you home – detailed or simplified expenses.
For detailed expenses you will be able to claim a proportion of costs such as:
Lighting & Electricity
Mortgage interest or rental
Internet & phone use
You will be need to work out the number of rooms in your home and use the proportion of the house which is used only as office space.
For simplified expenses:
Avoid the hassle of working all of this out yourself and use simplified expenses to work out a flat rate depending on the proportion of the property used.
Use the simplified expense check tool to work out whether this would be advantageous or not.
If you are a skilled manual worker who needs to buy tools for your job you will be able to claim the cost of these against your income. For example, if you are a tree surgeon and require chain saws, a chef who needs to buy kitchen knives or a dog groomer who needs to purchase clippers. The full cost of these items of these items can be claimed on your tax form.
You will need to keep a detailed list of the items bought along with receipts.
You cannot claim for driving to and from work, but if you need to work away then those expenses can be claimed against tax. For example, you may be a building surveyor working on different sites, an area manager where you travel to separate stores or an IT professional visiting client. In all these cases you will be able to claim the mileage, a pence per mile for travel to these places. This is to cover the cost of wear and tear on your vehicle as well as for fuel, depreciation insurance. Currently, HMRC allows you to claim up to 45p per mile for the first 10,000 miles (depending on the size of our engine) and 25p per mile in excess of this.
You will need to keep a detailed record of all the places driven too along with the purpose and the miles covered.
If you use public transport, then the full cost can be claimed if it is not refunded by your employer.
If your work requires you to make overnight stays, then this can also be claimed. Once again this is only if your employer doesn’t reimburse you. You will need to keep all the receipts.
Don’t forget food & drink which you can also claim.
In this day and age few people want to carry around two mobile phones, one for work and one for personal. It makes sense to have one. You could be due a tax refund if you haven’t claimed the cost of the cost of business use against your tax bill. The full cost of your mobile phone bill less a proportion for personal use is claimable. You simply need a straightforward, documented method that you can explain if there was ever an enquiry.
It is slightly different for limited companies where they can now provide you with a sim as long as it is in the company name. The phone would become an asset of the company.
If you are a member of a trade body then you can claim the tax relief on the cost. HMRC has a full list of over 2900 professional bodies or ‘approved professional organisations’ for which you can claim the cost of membership against your tax bill.
Royal Institute of Chartered Surveyors (RICS)
The Institute of Chartered Accounts (ICAEW)
The British Veterinary Association
Check out the full list.
You may also be able to claim the cost of being a member of a Trade Union. Check with them as the amount depends on the agreement they have with HMRC. Note that you are not able to claim expenses for membership of a political party, gym or donations to charity (although you may be able to claim sponsorships)
If you regularly buy trade magazines which relate to your business then you will be able to claim a tax refund if you haven’t claimed them as an expense. They must relate to your line of business for example:
Modus – The monthly magazine for the surveying profession.
The Accountant – for the accountancy profession
If your work requires you to wear a recognisable uniform. You can claim the cost of buying this clothing as a business expense.
For example, a tree surgeon will require cold protective clothing and footwear which can all be claimed against tax. A chef will have to provide recognisable whites in order to work in the kitchen.
You will not be able to claim for everyday wear. For example, you could not claim for underpants and T-shirts but may be able to claim for thermal underwear or thermal socks if you are working outside.
Often overlooked, pension contributions are tax deductible. If you make contributions to a personal pension, then your provider will claim 20% tax relief and add it to your payments.
For example, if you pay in £250 per month you will see a monthly credit of £50 being added to your pension fund.
If you are a higher rate taxpayer, then you can claim the difference between the basic 20% and whatever your upper rate is. This can be an extra 20% or 25% of the amount you paid.
Many self-employed people do not think about claiming the cost of cleaning their workwear. There are various cleaning bills that you may be able to claim. You will need to wash your work clothes. For example, a freelance chef will need to wash his or her whites on a regular basis. This can become an expensive business. Make sure you claim the cleaning costs.
If you donate to charity using Gift Aid the charity can claim an extra 25p for every £1 you donate. If you are a higher rate taxpayer, then you can claim the difference between your rate and the rate on your donation. For example, if you donate £250 and the charity claims £62.50 and you pay 40% tax then you can claim 15% or £37.50 of your donation.
Some professions require you to protect yourself in work from injury. For example, a bricklayer or building surveyor. Hi-viz jackets and helmets are a common example. The best example of this is on construction sites but there are rarer cases of deep-sea divers and professions working with dangerous animals.
HMRC oversee workers in the construction industry through the construction industry scheme or CIS. Contractors are instructed to take away 20% from self-employed sub-contractors and in many cases, this can be too much.
On average a construction industry worker can claim annual refunds of up to £2500. This is a sizable tax rebate that you may not be aware of.
When an individual starts self-employment they may find that during the first few years of operation they make a loss. Some business do take time to establish themselves so it is not uncommon for this to happen. The business may invest in marketing and other tools which will drag on it in the first few years.
HMRC allow loses made in the first four years of trading to be offset against previous income. This can often result in a tax rebate or repayment.
This is something of a misnomer as you don’t need to be married to claim this allowance! Those who are in what was once known as a civil relationship can also claim. If one partner does not use up their personal allowance, then they can choose to give up to £1,190 to their partner.
In order to do this, they need to earn less than their partner for the full tax year. They also need to earn less than the basic allowance (11,851 in 2018/2019).
This is not the Married Couple Allowance which only applied if the partner was born before the 1935 tax year.
If you earn money from several different places, for example, you may be self-employed but also have a private pension. You may be paying too much tax without realising it! HMRC may spot this and make an adjustment but as most organisations work independently of each other mistakes can be made, and allowances not claimed.
It can of course work in HMRC’s favour if income from these separate places is not declared properly so you need to be careful. The last thing you want is to trigger a tax investigation.
Mistakes do happen and although it is not common HMRC can miscalculate and you end up paying too much tax. It is up to you or your professional advisor to spot this and arrange for the correction to be applied.
Clearly, there are many cases where you could end up paying too much tax and may be due a tax refund. However, if you deliberately claim expenses which are not allowable then this could land you in trouble. If this is you and you would like to speak with an expert give us a call today! 0800 471 4546
Kinsella Tax 2019©