Here’s how to earn tax-free money through doing something you love.

Spare time earnings may be tax-free

The new trading tax allowance for individuals of £1,000 was introduced from 6 April 2017 and applies for the 2017/18 tax year onwards. In broad terms, the allowance means that individuals with trading income below the annual threshold may not need to report it to HMRC and may not need to pay tax on it.

This allowance may be particularly useful to individuals with casual or small part time earnings from self-employment, for example, people working in the ‘gig economy’ (Deliveroo workers and such like), or small-scale self-employment such as online selling (maybe via eBay or similar). It means that:

  • individuals with trading income of £1,000 or less in a tax year will not need to declare or pay tax on that income
  • individuals with trading income of more than £1,000 can elect to calculate their profits by deducting the allowance from their income, instead of the actual allowable expenses.

Practical implications of the allowance include:

  • where actual expenses are less than £1,000, deducting the trading allowance will be beneficial, whereas if actual expenses are more than £1,000, deducting the actual expenses will give a lower profit figure, and ultimately a lower tax bill
  • where income is less than £1,000, but the individual makes a loss, an election for the allowance not to apply may be made – in this case, the loss in the usual way and include the details on their tax return, meaning that loss relief is not wasted

Example – Income less than £1,000

Graham enjoys picture-framing in his spare time, and he occasionally frames prints for family and friends for a small fee. During the 2018/19 tax year he received income of £700 from this source, and his expenditure on framing equipment amounted to £300. As Graham’s trading income is less than £1,000, he does not need to report it to HMRC and he does not need to pay tax or national insurance contributions (NICs) on it.

Example – Income exceeding £1,000

Mary enjoys baking and makes celebration cakes to order in her spare time. In 2018/19, her income from cake sales is £1,500 and she incurred expenses of £300. As Mary’s expenditure is less than £1,000, she will be better off if she claims the trading allowance. Her taxable profit will be £500 (£1,500 less the trading allowance of £1,000).

More than one source of trading income

Although the trading allowance may work well for many small-scale traders, care must be taken where a person’s main source of income is from self-employment and their secondary income is from a completely separate small-scale business. HMRC will combine income from all trading and casual activities when considering the trading allowance. In this type of situation, where the allowance is claimed, the individual will not be able to claim for any expenditure, regardless of how many businesses they have and how much their total business expenses are.

Example – More than one income source

Mark is a self-employed car mechanic and has income of £30,000 in 2018/19. His business expenditure for the year is £10,000. In his spare time, Mark buys and sells old collectable car magazines via the internet. During 2018/19 he received net income of £1,000 from this source. If Mark claims the trading allowance against his part time income, he will be unable to claim expenses of £10,000 against his car mechanic income, and his taxable profit for the year will be £30,000. If he doesn’t claim the trading allowance, his taxable profit for the year will be just £21,000.

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Year-end tax planning tips

As the end of the 2018/19 tax year approaches, it is worthwhile taking time for some last-minute tax planning. Here are some simple tips that may save you money.

  1. Preserve your personal allowance: the personal allowance is reduced by £1 for every £2 by which income exceeds £100,000. For 2018/19, the personal tax allowance is £11,850, meaning that it is lost entirely once income exceeds £123,700. Where income falls between £100,000 and £123,700, the effect of the taper means that the marginal rate of tax is a whopping 60%. Where income is over £100,000, consider making pension contributions or charitable donations to reduce income and preserve the personal allowance. Where this is an option, consider also deferring income until after 6 April 2019 to reduce 2018/19 income.
  2. Claim the marriage allowance: the marriage allowance can save a couple tax of £238 in 2018/19. Where an individual is unable to utilise their personal allowance, they can make use of the marriage allowance to transfer 10% of their personal allowance (rounded up to the nearest £10) to their spouse or civil partner, as long as neither pay tax at the higher or additional rate. The marriage allowance must be claimed.
  3. Pay dividends to use up the dividend allowance: family and personal companies with sufficient retained profits should consider paying dividends to shareholders who have not yet used up their dividend allowance for 2018/19. The dividend allowance is set at £2,000 and is available to all individuals, regardless of the rate at which they pay tax. The use of an alphabet share structure enables individuals to tailor dividend payments according to the individual’s circumstances.
  4. Make pension contributions: tax relieved pension contributions can be made up to 100% of earnings, capped at the level of the annual allowance. The annual allowance is set at £40,000 for 2018/19 (subject to the reduction for high earners). Where the annual allowance is not used up in year, it can be carried forward for up to three years.
  5. Transfer income-earning assets to a spouse or civil partner: where one spouse or civil partner has unused personal allowances or has not fully utilised their basic rate band, considering transferring income earning assets into their name to reduce the combined tax liability (but non-tax considerations such as loss of ownership should be taken into account).
  6. Put assets in joint name prior to sale: spouses and civil partners can transfer assets between them at a value that gives rise to neither a gain nor a loss. This can be useful prior to selling an asset which will realise a gain in order to take advantage of both partners’ annual exempt amount for capital gains tax purposes.
  7. Make gifts for inheritance tax purposes: individuals have an annual exemption for inheritance tax of £3,000, allowing them to make gifts free of inheritance tax each year. Where the allowance is not used, it can be carried forward to the next year, but is then lost.

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Salary v dividend for 2019/20

A popular profits extraction strategy for personal and family companies is to extract a small salary, taking further profits as dividends. Where this strategy is pursued for 2019/20, what level should be the salary be set at to ensure the strategy remain tax efficient?
Salary
As well as being tax effective, taking a small salary is also advantageous in that it allows the individual to secure a qualifying year for State Pension and contributory benefits purposes.
Assuming the personal allowance has not been used elsewhere and is available to set against the salary, the optimal salary level for 2019/20 depends on whether the employment allowance is available and whether the employee is under the age of 21. The employment allowance is set at £3,000 for 2019/20 but is not available to companies where the sole employee is also a director (meaning that personal companies do not generally benefit).
In the absence of the employment allowance and where the individual is aged 21 or over, the optimal salary for 2019/20 is equal to the primary threshold, i.e. £8,632 a year (equivalent to £719 per month). At this level, no employee’s or employer’s National Insurance or tax is due. The salary is also deductible for corporation tax purposes. A bonus is that a salary at this level means that the year is a qualifying year for state pension and contributory benefits purposes – for zero contribution cost. Beyond this level, it is better to take dividends than pay a higher salary as the combined National Insurance hit (25.8%) is higher than the corporation tax deduction for salary payments.
Where the employment allowance is available, or the employee is under 21, it is tax-efficient to pay a higher salary equal to the personal allowance of £12,500. As long as the personal allowance is available, the salary will be tax free. It will also be free of employer’s National Insurance, either because the liability is offset by the employment allowance or, if the individual is under 21, because earnings are below the upper secondary threshold for under 21s (set at £50,000 for 2019/20). The salary paid in excess of the primary threshold (£3,868) will attract primary contributions of £464.16, but this is outweighed by the corporation tax saving on the additional salary of £734.92 – a net saving of £279.76. Once a salary equal to the personal allowance is reached, the benefit of the corporation tax deduction is lost as any further salary is taxable. It is tax efficient to extract further profits as dividends.
Dividends
Dividends can only be paid if the company has sufficient retained profits available. Unlike salary payments, dividends are not tax-deductible and are paid out of profits on which corporation tax (at 19%) has already been paid.
However, dividends benefit from their own allowance – set at £2,000 for 2019/20 and payable to all individuals regardless of the rate at which they pay tax – and once the allowance has been used, dividends are taxed at lower rates than salary payments (7.5%, 32.5% and 38.1% rather than 20%, 40% and 45%).
Once the optimal salary has been paid, dividends should be paid to use up the dividend allowance. If further profits are to be extracted, there will be tax to pay, but the combined tax and National Insurance hit for dividends is less than for salary payments, making them the preferred option.

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Does the marriage allowance apply to you?

The marriage allowance can be beneficial to married couples and civil partners on lower incomes. Claiming the marriage allowance is worth up to £238 in 2018/19 and £250 in 2019/20.
Nature of the allowance
The marriage allowance allows one spouse of civil partner to transfer 10% of their personal allowance (rounded up to the nearest £10) to their partner if they are unable to utilise the full allowance. However, it is only available where the recipient pays tax at the basic rate – couples where one party has no income and the other party is a higher or additional rate taxpayer cannot benefit from the allowance.
A personal can transfer 10% of their personal allowance to their spouse or civil partner if:
• they are married or in a civil partnership;
• they have not used up all of their personal allowance (set at £11,850 for 2018/19 and at £12,500 for 2019/20);
• and their partner pays tax at the basic rate.
For Scottish taxpayers, the marriage allowance is available if the recipient pays tax at the Scottish starter, basic or intermediate rates.
For 2018/19 the personal allowance is £11,850 and the marriage allowance is £1,190. For 2019/20, the personal allowance is £12,500 and the marriage allowance is £1,250.
Impact of the marriage allowance
Where the marriage allowance is claimed, the transferor’s personal allowance for the year is reduced by the amount of the allowance and the transferees personal allowance is increased by the amount of the allowance. Instead of that portion of the personal allowance being wasted, it is set against the transferee’s income, saving tax at the basic (or relevant Scottish) rate.
Example
Lauren is a stay-at-home mum. She has no income in either 2018/19 or 2019/20.
Her husband Joe works as an electrician earning £20,000 a year.
They claim the marriage allowance for both 2018/19 and 2019/20.
For 2018/19, the allowance is £1,190. By claiming the allowance, Lauren’s personal allowance is reduced to £10,660 (£11,850 – £1,190) and Joe’s personal allowance is increased to £13,040 (£11,850 + £1,190). Their combined personal allowances remain at £23,700, but utilising the marriage allowance to increase Joe’s allowance while reducing Lauren’s saves them £238 (£1,190 @ 20%) in tax.
If they claim the marriage allowance of £1,250 for 2019/20, Lauren’s personal allowance will fall to £11,250 (£12,500 – £1,250), while Joe’s personal allowance will increase to £13,750. Claiming the allowance will save them tax of £250 (£1,250 @ 20%) for 2019/20.
The allowance will still be effective where the partner with the lower income does not fully utilise the allowance, even if as a result, they have some tax to pay as a result of making the claim.
Example
In 2018/19, Max has income of £11,000 and his wife Amy has income of £17,000. Claiming the marriage allowance will reduce Max’s personal allowance to £10,660, meaning he will pay tax of £68 ((£11,000 – £10,660) @ 20%). However, Amy’s personal allowance will increase to £13,040, saving her tax of £238. As a couple they are £170 better off (£238 – £68).
How to claim
The marriage allowance can be claimed online: see www.gov.uk/apply-marriage-allowance. Once a claim is made it will apply automatically for subsequent tax years, unless cancelled or circumstances claim. A claim can be backdated to include any tax year since 5 April 2015 for which the qualifying conditions are met.
The allowance can also be claimed for the year in which one partner dies.
Impact on tax codes
Where the marriage allowance is claimed, both the transferor’s and transferee’s tax code are amended as a result. A code with a ‘M’ suffix denotes that the individual has received the marriage allowance, whereas a ‘N’ suffix denotes that the individual has transferred 10% of their personal allowance to their spouse or civil partner.
In the above example, Lauren would have a tax code of 1066N for 2018/19, while Joe’s tax code would be 1,304M. For 2019/20, Lauren’s tax code would be 1125N, while Joe’s tax code would be 1375M.

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Would you rent out a property as a long-term rental or holiday let?

Where a property is located in a holiday region, a consideration will be whether to let it as a holiday let or on a longer-term basis. As well as differing rental income profiles, there are tax differences to consider.

Furnished holiday lets

From a tax perspective, special rules apply to furnished holiday lets, which provide a number of advantages compared to the tax regime applying to other rental business.

Furnished holiday lettings:

  • benefit from capital gains tax reliefs for traders such as business asset rollover relief, entrepreneurs’ relief, relief for gifts of business assets and relief for loans to traders;
  • benefit from availability of plant and machinery capital allowances for items of furniture, fixtures and fittings; and
  • profits count as earnings for pension purposes.

To benefit from these advantages, any furnished holiday lettings are treated separately from other lets and the profits must be worked out separately for each furnished holiday lettings business.

What counts as a furnished holiday let

The property must be in the UK or the EEA and must be let furnished; the furniture provided must be sufficient for normal occupation and visitors must be able to use the furniture. The property must also be commercially let.

UK and EEA lets are treated as different furnished holiday lettings businesses.

The furnished holiday letting must also pass various tests.

The occupancy tests

There are three occupancy tests and all must be met for the property to be treated as a furnished holiday letting for tax purposes.

The pattern of occupation condition

A let will not count as a furnished holiday letting if the total of all lettings that exceed 31 days is more than 155 days in the tax year.

The availability condition

The property must be available for letting as a furnished holiday accommodation for at least 210 days in the tax year.

The letting condition

The property must be commercially let as furnished holiday accommodation for at least 105 days in the tax year. Longer lets of more than 31 days are excluded, unless the let extends beyond 31 days due to unforeseen circumstances.

If the property fails the letting condition and is not let for 105 days in the tax year, there are two concessionary routes by which the property may still qualify – by making an averaging election or a period of grace election. The elections can be used together.

Averaging election

Where a landlord has more than one property which is let as furnished holiday accommodation, the condition is treated as met where an averaging election is made as long as on average each property is let for at least 105 days in the tax year. So, for example, if a landlord has 4 properties which in total were let on lets of less than 31 days for at least 420 days, the letting conditions is met under an averaging election, even if any individual property is let for less than 105 days.

An averaging election must be made by the anniversary of 31 January following the end of the tax year, i.e. by 31 January 2021 for 2018/19.

Period of grace election

The second way in which the condition can be treated as met is by making a period of grace election where it can be shown that there was a genuine intention to let the property, but this did not happen due to unforeseen circumstances. The letting condition must have been met in the year before that for which the first period of grace election is made. A second period of grace election is permitted, but if a property does not meet the letting threshold in the fourth year after two consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.

Losses

Losses can now only be carried forward and set against profits from the same furnished holiday lets business.

If the property does not qualify as a furnished holiday let, the normal tax rules for rental businesses apply.

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Rent-a-room: Can you benefit?

Rent-a-room relief was introduced to encourage people to let spare rooms in their own home in order to increase the supply of low-cost rental accommodation. In return, the recipient is able to earn up to £7,500 a year tax-free.

Plans to restrict the relief so that it was only available where the occupation by the tenant overlapped with that of the landlord for at least one night have been abandoned – meaning that it is still possible to benefit from the relief for Airbnb-type lets where the property may be rented out for a short time in the landlord’s absence. It can also be used by those running a bed-and-breakfast.

Qualifying accommodation

To qualify the accommodation must be let furnished in the landlord’s home – it does not matter whether the home is owned or rented (but where rented, check that sub-letting is permitted). Where more than one person benefits from the income, the tax-free limit is halved, regardless of how many people share the income.

The relief

Rental income up to the rent-a-room limit is tax-free and does not need to be reported to HMRC. Where the rental income is more, the landlord has a choice:

  • work out rental profit in the usual way by deducting expenses from the rental income;
  • deduct the rent-a-room limit from the rental income and pay tax on the difference.

Using the rent-a-room limit will be beneficial where this is more than actual expenses. Where this route is taken, the relief should be claimed on the self-assessment tax return by ticking the appropriate box.

Case study 1

John is single and has a two-bedroom house. He lets out his spare room for £400 a month. He qualifies for rent-a-room relief. As his rental income of £4,800 is less than the rent-a-room limit, he does not need to declare it to HMRC.

Case study 2

Rob and Fiona are keen hikers and go away each weekend in the summer. They let out their Brighton flat via Airbnb while they are away. In 2018/19 they earned rental income £6,000, which they shared equally.

Rob and Fiona share the income and each have a rent-a-room limit of £3,750. As the rental income from letting out the flat (£3,000 each) is less than their rent-a-room limit, they are eligible for rent-a-room relief and do not need to report the income to HMRC.

Case study 3

Julie runs a B and B in Cheltenham. In 2018/19, she receives rental income of £12,000. Her expenses are £3,000.

As her rental income is more than £7,500 she must report it to HMRC. However, she can still benefit from rent-a-room relief by opting to work out her profit by deducting the rent-a-room limit of £7,500 rather than actual costs of £3,000. Thus, her taxable profit is only £4,500, rather than £9,000 (which would be the profit in the absence of rent-a-room relief). By claiming the relief, she will save tax of £900 if she is a basic rate taxpayer and tax of £1,800 if she is a higher rate taxpayer.

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Importance of registering for child benefit even if the High-Income Child Benefit charge applies

Parents affected by the High-Income Child Benefit charge (HICBC) can be forgiven for thinking that there is no point is registering for child benefit if they are only going to have to give back everything they receive in the form of the tax.

The HICBC applies where the parent claiming child benefit or their partner has income of more than £50,000 a year. The charge is set at 1% of the child benefit received for each £100 by which income exceeds £50,000. So, for example, if income is £57,000, the charge is equal to 70% of the child benefit received (((£57,000 – £50,000)/£100) x 1%). Once income reaches £60,000, the charge is equal to 100% of the child benefit received. The amount of child benefit received depends on the number of children – it is payable at a rate of £20.70 per week for the first child and £13.70 per week for each subsequent child. Where both partners have income in excess of £50,000, the charge is levied on the partner with the higher income; this is often not the person who received the benefit.

Child benefit also confers state pension rights. Parents registered for child benefit in respect of a child under 12 automatically receive Class 3 National Insurance credits. Class 3 credits have the effect of making a year a qualifying year for state pension (but not contributory benefit) purposes. Thus, each year that a parent is registered for child benefit for a child under 12 provides one qualifying year for state benefit purposes. A person needs 35 qualifying years for the full single-tier state pension and at least ten to receive a reduced state pension.

Failing to register for child benefit can mean missing out on an automatic entitlement to at least 12 qualifying years; this is particularly important if the claimant is a stay-at-home parent or works part time but does not pay sufficient Class 1 or 2 contributions to make the year a qualifying year.

If receiving the money and having to pay it back is a worry, it needn’t be. It is possible to register for child benefit and to elect not to receive it. This can be done online or by contacting HMRC’s child benefit office. Parents can restart the payment of child benefit if circumstances change and the full HICBC no longer applies (for example if income dips below £60,000). Where income is between £50,000 and £60,000 it is worth claiming the benefit as the HICBC will be less than the benefit received. Ring-fencing the amount needed to pay the charge in a separate account will remove some of the worry over having the funds available to pay the tax.

As claims for child benefit can only be backdated three months, parents affected by the HICBC who have opted not to claim child benefit should do so without delay. Registering for child benefit will also ensure that the child receives a National Insurance number on reaching age 16.

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Jointly-owned property – who pays the tax?

Where property is jointly-owned, the way in which the rental income can be split between the joint owners for tax purposes depends on whether the joint owners are married or in a civil partnership or not.

Married couples and civil partners

Where a property is jointly owned by a married couple or civil partners, the basic rule is that the rental income is split equally, regardless of the actual underlying ownership.

Example

Tom and Richard are married. They jointly own a flat in which Tom has a 70% stake and Richard has a 30% stake. The flat is let out. The rental profit is £8,000 a year.

Despite owning the property in unequal shares, Tom and Richard are both taxed on 50% of the rental income (£4,000).

However, where the beneficial ownership is unequal, the couple can elect (on Form 17) for the income to be assessed for tax purposes in accordance with their actual beneficial shares. In the above example, were Tom and Richard to make a Form 17 election, Tom would be taxed on rental profits of £5,600 (70%) and Richard would be taxed on £2,400 (30%).

For married couples and civil partners, the only permissible allocations are 50:50 (the default position) and, on the making of a Form 17 election, in accordance with actual ownership where the property is owned in unequal shares.

Joint owners who are not married or in a civil partnership

Where a property is owned jointly by individuals who are not married or in a civil partnership, it is usual for the rental income to be allocated in accordance with the ownership share. However, the joint owners can agree to a different division of profits and losses – the allocation for tax purposes does not have to mirror the actual ownership of the property. However, where a different allocation is agreed, the split for tax purposes must match the actual allocation of rental profits.

Example

Jake and his girlfriend Jade jointly own a flat which they let out. Jake owns 20% of the property and Jade owns 80% of the property. The rental profit is £10,000 a year.

Jade has £3,000 of her basic rate band available, whereas Jake has £9,000 of his basic rate band available. Therefore, to minimise the tax payable on the rental income, they agree that it will be shared so that Jade receives 30% (£3,000) and Jake receives 70% (£7,000).

Where joint owners are not married or in a civil partnership it is possible to agree an actual allocation that minimises tax. However, depending on the relationship between the owners, the tax considerations may be secondary as each owner may be keen to receive a share of rental profits proportionate to their actual stake in the property.

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Using the cash basis – is it for you?

The cash basis is a simpler way of working out taxable profits compared to the traditional accruals method. The cash basis takes account only of money in and money out – income is recognised when received and expenses are recognised when paid. By contrast, the accruals basis matches income and expenditure to the period to which it relates. Consequently, where the cash basis is used there is no need to recognise debtors, creditors, prepayments and accruals, as is the case under the accruals basis.

Example

Ben is a self-employed plumber. He prepares accounts to 31 March each year. On 28 March 2019 he fits a new shower, invoicing the customer £600 on 29 March 2019. The customer pays the bill on 7 April 2019.

He purchased the shower for £400 on 25 March 2019, receiving an invoice from his supplier dated the same date. He pays the bill on 8 April 2019 after he has been paid by the customer.

On the cash basis, the income of £600 and expenditure of £400 fall in the year to 31 March 2020 – they are recognised, respectively, when received and paid (in April 2019). By contrast, under the accruals basis, the income and expenditure falls into the year to 31 March 2019 as this is when the work was done and invoiced.

Who can use the cash basis?

The cash basis is available to small self-employed businesses (such as sole traders and partnerships) whose turnover computed on the cash basis is less than £150,000. Once a trader has elected to use the cash basis, they can continue to do so until their turnover exceeds £300,000. These limits are doubled for universal credit claimants.

Limited companies and limited liability partnerships cannot use the cash basis.

Advantages of the cash basis

The main advantage of the cash basis is its simplicity – there are no complicated accounting concepts to get to grips with. Because income is not recognised until it is received, it means that tax is not payable for a period on money that was not actually received in that period. This also provides automatic relief for bad debts without having to claim it.

Not for everyone

Despite the advantageous associated with its simplicity, the cash basis is not for everyone. The cash basis may not be the right basis for you if:

  • you want to claim a deduction for bank interest or charges of more than £500 (a £500 cap applies under the cash basis);
  • your business is more complex, for example, you hold high levels of stock;
  • your need to obtain finance – banks and other institutions often ask for accounts prepared on the accruals basis;
  • you want to claim sideways loss relief (i.e. set a trading loss against your other income) – this is not permitted under the cash basis.

Need to elect

If the cash basis is for you, you need to elect for it to apply by ticking the relevant box in your self-assessment return.

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Don’t pay for expenses that your employer should be paying for – here’s how and when to claim a tax deduction.

Employees – claim a tax deduction for expenses

Employees often incur expenses in doing their job – this may be the cost of a train ticket or petrol to visit a supplier, or purchasing stationery or small tools which are used in their job. Employers will frequently reimburse the employee for any expenses that they incur, but where such a reimbursement is not forthcoming, the employee may be able to claim a tax relief.

The test

Employment expenses are deductible only if they are incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’. The test is a harsh test to meet; the ‘necessary’ condition means that ‘each and every’ jobholder would be required to incur the expense. Consequently, there is no relief if the expense is not ‘necessary’ and the employee chooses to incur it (even if the ‘wholly and exclusively’ parts of the test are met). The rules for travel expenses are different, but broadly operate to allow relief for ‘business travel’.

In the performance of the job v putting the employee in a position to do the job

A distinction is drawn between expenses that are incurred in actually performing the job and those which are incurred in putting the employee in the position to do the job. Expenses incurred in travelling from the office to a meeting with a supplier and back to the office are incurred in performing the job. By contrast, childcare costs or home to work travel are incurred to put the employee in a position to do the job. Relief is available only for expenses incurred as part of the job, and not for those which incurred, albeit arguably necessarily, to enable the employee to do the job.

Expenses for which relief may be claimed

A deduction can be claimed for any expense that meets the ‘wholly, exclusively and necessarily’ test. Examples include professional fees and subscriptions, travel and subsistence costs, additional costs of working from home, cost of repairing tools or specialist clothing, phone calls, etc.

Where the expense is reimbursed by the employer, a deduction cannot be claimed as well; however, the amount reimbursed is not taxable and is ignored for tax purposes.

Using your own car

Where an employee uses his or her own car for business travel, the employer can pay tax-free mileage payments up to the approved rates. For cars and vans, this is 45p per mile for the first 10,000 miles in the tax year and 25p per mile for any subsequent miles.

If the employer does not pay mileage allowances or pay less than the approved amount, the employee can claim tax relief for the difference between the approved amount and the amount paid by the employer.

Flat rate expenses

Employers in certain industries are able to claim a flat rate deduction for certain expenses in line with rates published by HMRC (see www.gov.uk/guidance/job-expenses-for-uniforms-work-clothing-and-tools#claim-table). Although claiming the flat rate removes the need to keep records of actual costs, employees can claim a deduction based on actual costs where this is more beneficial.

How to claim There are different ways to make a claim depending on your circumstances. Claims can be made online using HMRC’s online service, by post on form P87, by phone or, where a self-assessment return is completed, via the self-assessment return.

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