Tax refunds are great, everyone loves a Tax rebate from HM Revenue & Customs. In many situations overpayments of Tax occur without the Tax payer knowing, or even HMRC having any knowledge. Because of this, they never get paid but get swallowed up by the Tax office over time.
Why does this happen?
The reason is fairly simple, overpayments usually occur when the Tax payer has not made a relief claim for certain items or expenses. Furthermore, a lot of the relief claims are not automatic, they must be made manually. In this article we will go through the fifteen most common reasons why you could be due a Tax rebate, and why they don’t happen naturally.
When reviewing the different reasons for Tax repayments, please also bear in mind that it’s possible to go back four Tax years to make an Tax relief claim.
1. Unclaimed allowances for Maintaining your Work Clothing
This is probably the most common area of undiscovered Tax rebates. HMRC understand that it is the requirement of workers to clean and maintain their own work uniform, and obviously this comes at an expense. From washing powder to the cost of the washing machine itself, HMRC recognise that there are costs involved in cleaning workwear.
HMRC even go so far as to allow specified rates for different occupations. For example, someone working in construction would have more costs cleaning their workwear than someone who works in an office for example.
Some of these allowances can be as high as £1,000 per annum. For higher rate Tax payers, this would mean that they are due £400 back, whereas for basic rate Tax payers, this could be an overpayment of £200 per annum.
2. Expenses Paid for Tools & Equipment
There are various situations where an employee might have to pay for tools and equipment, necessary for their job. These necessary expenses are Tax deductible which means that you are entitled to Tax relief. Some examples of work related expenditure for tools & equipment:
- Knives for chefs
- Clippers for hair dressors
- Trowels for bricklayers
- Multifunction testers for electricians
As you can appreciate, different industries have their own areas of specific expenses – far too many to list here. The important aspects are the tools must be necessary for the completion of the work duties, and they must have been paid by the individual for a Tax relief claim to be valid.
3. Expenses Suffered for PPE (Personal Protection Equipment)
As noted above, there might be certain jobs or positions that (legally) require the use of PPE. The main area where this would apply would be for construction trades, such as bricklaying, scaffolding, civil engineering, and job that requires the worker to be wearing personal protection gear.
Sometimes, but not always, the employer would cover these expenses. If not, then you would have an allowable Tax relief claim.
4. Mileage / Transportation Costs
For some individuals they may be required to work in different locations and may not be reimbursed mileage from their employer. Some examples would include:
- Visits to client premises, for example a gas worker servicing a customer’s boiler
- Travelling between different work locations, e.g. an accounts manager that works across two or more offices
- Other trips required during the course of business, to see suppliers, service providers etc
It is not uncommon for these expenses to be wholly incurred by the employee without the employer reimbursing the mileage costs. HMRC set out flat rates for claiming milage expenses, 45p per mile for the first 10,000 miles, and 25p per mile for any miles incurred thereafter during that Tax year. These rates are meant to include costs for servicing, fuel, insurance, MOT and depreciation.
Furthermore, if you do not use your own vehicle but instead use public transport, then such related costs would be Tax deductible. For example bus fares, rail cards, taxi fees. These are all expenses available for Tax relief.
5. Incorrect PAYE Codes in Operation
Quite often we find that HMRC have issued wrong PAYE codes to the employer, or the employer have simply operated an incorrect PAYE code themselves. The most common example is where a Tax payer has been placed on an emergency Tax code, BR. This means that all of the salary would be Taxed at 20% with no deductions for the Personal Allowance.
There are other irregularities in PAYE codes can develop repayment situations. The only way to find out is to review the PAYE codes in operation and checking that the deductions and allowances were correct for that employment.
6. Incorrect Calculations
It doesn’t often happen, but it has been known for employers to make mistakes when processing payroll. Most employers would rely on software to calculate Tax and NI deductions, but even in these cases, relying on software can result in miscalculations. Payroll clerks will typically expect the figures to be correct and will rarely check the deductions.
If left unchecked over the course of the year it could result in an overpayment of Tax.
One way to check your calculations is by using our Tax calculator. This calculate is fully functional whether you’re employed or self employed.
7. Change of Employments
The normal situation when someone leaves one employer to join another employer is for a P45 to be issued by the former employer. This P45 would then be collected by the new employer who would then have details of the employees PAYE code as well as previous Gross Pay and Tax Deducted figures. The problem lies in when this P45 has been lost between jobs, for example the worker may have had some time off between positions. When this happens, the new employer does not have details of what has previously been paid and needs to operate a different kind of PAYE code (week 1 or month 1 basis). In these situations, it is common for overpayments to arise as the employee would not have received their full allowances for the year.
8. Self-Employed and not Claiming All Reliefs
HMRC have a great system that allows Tax payers to complete their Tax return relatively easily online. All of the calculations are done for you and the forms are tailored for your particular circumstances. The problem lies in that they still rely on you to have some knowledge on what can be claimed. It is common for areas of expenditure to be overlooked by the individual. Examples:
- Home Internet costs
- Use of home as office
- Capital allowances on equipment
- Mileage costs
- Pre-trading expenditure
9. Left Employment Through the Year
For one reason or another, some people may have been working for part of the Tax year and left employment, voluntarily or involuntarily. In these circumstances it is highly likely that part of the annual personal Tax free allowance has gone unused and a repayment is due. For example, if someone had been working and paying Tax until October then left employment. As long as they did not receive any other income for the rest of the year, they would have over £5,000 of allowances unused, generating a possible Tax repayment of up to £2,000.
10. Working Within the CIS Industry
For those who aren’t aware of the CIS industry, it is a process set in motion by HMRC to oversee Tax collection from workers that operate in the Construction Industry. CIS itself stands for Construction Industry Scheme. The way it works is that HMRC instruct contractors to deduct 20% from all self-employed sub-contractor payments. 99% of the time, these deductions are way too much than is what is required. And on average these workers are due an annual repayment of £2,500.
You can find more about CIS Tax rebates in this article which explains the process in more detail.
11. Subscription Costs
For professional workers who hold qualifications, it may be necessary for them also to pay professional subscription costs. Some perfect examples would be:
- Tax Purposes Police Federation for Policeman
- Trade memberships
- Gas safe register subscription costs
- SIA licence fees for security workers
Again, some of these may be reimbursed directly by the employer, but for some employees they may have to pay the expenses themselves, in which case a Tax repayment would most likely be due.
12. Starting Self Employment
For those that have just started out in self employment, they might have found that in the opening years of trading they have made a loss. This is not out of the ordinary as for some businesses it can take a while to establish a good reputation and to build a brand. In the meantime, heavy investments might be made in tools, equipment, machinery, advertising and other expenditure relating to building up the business.
HMRC specifically allow for special Tax relief in these cases, in that any losses incurred in the first four years of trade can be offset against previous income, resulting in a repayment. For example say £10,000 was lost in year one, and this was carried back against other Taxable income, a repayment could be generated for £2,000.
13. Unused Marriage Allowance
This is a new relief offered by HMRC, and despite it being called “Marriage Allowance”, you don’t actually have to be married! I.e. for those who are living with each other in a civil relationship can also claim this allowance.
The allowance itself is used when one individual in the relationship has unused personal allowances, whereas the other party may have used all of their personal allowances. An example is one person working part-time, or perhaps looking after children full time whilst the other partner is at work full time. The person that has unused allowances can transfer £1,150 of their unused allowances to their partner.
This has the opportunity of generating an annual Tax repayment of £230 for basic rate Tax payers and should not be overlooked!
Marriage Allowance has been in operation since April 2015, hence if you have unclaimed this allowance, you can claim the allowance for two complete Tax years, possible generating a repayment of £460.
Please do not confuse this with Married Couples Allowance, an older version (still in existence), but only applies where one of the partners in the relationship were born before 6th April 1935 (82 years old at the date of writing this article).
14. Accommodation Costs
When working for an employer, you may be required to work at different locations which may also require you to stay at that location overnight. Regardless of the travelling expenses mentioned above, if your employer has not reimbursed your accommodation expenses, you may also be due Tax relief on these costs also.
15. Other Income Taxed at Source
Some individuals may have more than one source of income, for example a pension. It is quite common for HMRC and pension companies to get mixed up, meaning that the incorrect amount of Tax is being taken off the second (or third) source of income.
The problem with these errors is that they rarely correct themselves and a manual claim must be made.
As you can see, there are many many situations where Tax repayments could arise. You will also note a pattern in that all areas require manual attention from the Tax payer. Tax relief does not come automatically.
If you believe you are due Tax relief, you should contact HMRC who would be willing to help. Many allowances and reliefs can be applied with a quick phone call, but sometimes more complex situations may require a claim to be made in writing, or perhaps may involve some calculations. HMRC should always be able to advise you in most cases.