Tax Relief: How It Works and How to Claim It
Tax relief allows you to pay less or earn money back from the government. We explain key tax relief types and how to put in your claim.
Tax relief means you either pay less tax or get tax paid back to you, and it can apply to a number of different payments, including charity donations and pension contributions, or business expenses if you’re self-employed.
Some tax relief happens automatically, while other types you need to claim for. By making sure you claim for any tax relief you’re eligible for, you can lower your overall tax bill.
Here we explain the varieties of tax relief available and how to put in your claim.
Key tax relief claims
There are lots of different sorts of tax relief, and the way you claim them and how far back you can backdate a claim will depend on the type of relief.
Here we’ve briefly outlined some of the most common sorts. If you think you should have received tax relief on something you’ve paid for, there’s no harm in contacting HM Revenue & Customs (HMRC) to ask how far back a claim can be made. It can also explain the claims process to you, if your employer doesn’t have the answers.
- Pensions. Tax relief is available on private pension contributions, including your workplace pension. If you pay basic-rate tax, you will automatically get 20% tax relief on your pension contributions, which will be paid directly into your plan. For higher-rate and additional-rate taxpayers, who pay 40% and 45% tax, respectively, on parts of their income, you can claim an additional 20% or 25% relief. This tax relief may be added automatically by your employer but if not you’ll need to claim for it by filling out a self-assessment tax return.
- Charity donations. Any donations made to a charity registered with HMRC are tax free. The charity can get tax relief if they are made via Gift Aid or straight from a person’s wages or pension through Payroll Giving.
- Loans. You can claim tax relief on some loans when the money borrowed is used for a specific purpose. This includes loans used to buy shares or lend money to a company in which the lender owns more than 5% of the ordinary share capital. A full list of the eligible loans can be found on the Gov.co.uk website.
- Uniforms. Tax relief is available if you wear a uniform for work and you have to buy it and keep it clean yourself. You can claim a flat-rate fee, depending on your profession, or you can claim for specific things you’ve paid for (but you’ll need receipts to prove the cost). To claim you’ll need to fill out an online form, or post one and send it off, and you may be able to back date your claim for the previous four years as well if you were eligible. There’s a detailed list of professions and flat-rate costs on the Gov.co.uk website. For self-employed workers, uniform and cleaning expenses can be added to your self-assessment tax return.
- Household expenses for self-employed workers. If you’re self-employed you can get tax relief on things you spend money on that help you with your work. The list is extensive but includes anything you buy for your business, such as a computer if you’re a journalist or travel costs if you have to travel for work. If you work from home, you can also claim back relief on utility bills including insurance, broadband and your rent.
- Tax relief if you’re working from home because of the coronavirus. Employees who are having to work from home because of the coronavirus lockdown may be able to claim tax relief on extra costs. You can do this via a self-assessment tax return or with form P87 from HMRC.
- Motoring expenses. If you use your own vehicle for work, you may be able to claim tax relief for expenses including its MOT, petrol, road tax, and repair costs. This doesn’t include commuting and you’ll usually need to keep receipts for how much you’ve spent.
How does tax relief work with buy-to-let mortgages?
The rules around tax relief in relation to housing costs are complex and have been changed significantly in recent years.
If you are a landlord as of April 2020 you can receive a tax credit based on 20% of your mortgage interest payments. This applies no matter what rate of tax you pay, whereas previously higher earners were able to receive 40% tax relief when they could deduct mortgage expenses from the rent they were paid.
Are there any other areas where you can get tax relief?
The methods of tax relief are endless, and while many are legal, they are often used by higher earners via tax specialists and can raise moral questions.
Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more