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What Is Tax Relief & How to Claim It

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What Is Tax Relief & How to Claim It

We all know how frustrating taxes can be. For people in regular employment, it means losing a significant chunk of earnings before your wages even hit your account. For self-employed people, tax is an ever-present accountancy burden that impacts how you track spending, bill your clients and bank your money. 

It’s not all bad news when it comes to understanding tax. Knowledge is power, after all – and knowing how the tax system works means you can take action to benefit from it. Tax relief schemes provide you with that exact opportunity. 

Tax relief, as the name suggests, relieves you of the tax you pay to the government. Most people who work, whether employed or self-employed, can access some amount of tax relief – but this varies depending on your individual circumstances. Tax relief deducts certain things from the tax you pay, meaning you’ll pay less tax and earn more money. 

Sounds good, right? To make the most of your tax relief opportunities, you need to understand what reliefs may apply to you. To do that, we’ve created this comprehensive guide to tax relief that covers what it is, who it can apply to and how you can claim it today. 

If guides aren’t quite your thing, you can always contact our team for expert advice. 

Understanding tax relief

Let’s get started by making the concepts behind tax relief as clear as possible. 

What is tax relief? 

Tax relief is a reduction that can be applied to the amount of tax you have to pay. That means both employees and self-employed people can utilise it, but which tax reliefs are available to each is different. 

Expenses are a common type of tax relief you might have heard of, where you can claim back the tax paid against any ‘allowable expenses’. They are, however, just one type of relief. 

Some tax reliefs are applied automatically, whilst others are more subjective, so you have to claim for them. 

What is the purpose of tax relief in the UK?

Tax relief is designed to alleviate the costs associated with certain types of business transactions or expenses. Rather than your full tax bill going to the government, a tax relief amount will be deducted from it – which means you’ll pay less tax.  

Tax reliefs also give the government a greater degree of flexibility in issuing reliefs to certain incentives or areas. For example, granting higher tax reliefs to businesses performing research and development (R&D) activities to promote UK business innovation. 

Common misconceptions about tax relief

Tax relief is a well-established concept, but it is still misunderstood regularly. The most common misconceptions people have seem to be around the following topics:

Misunderstanding Reality
Tax relief is only for business owners and sole traders. Many tax reliefs apply to employees, such as Flat Rate Expenses and Pension contributions.
I can use tax reliefs to help pay off my mortgage when working from home. If you own your business and you work from home, you can claim some tax relief on running costs and expenses – but not for fixed costs like mortgages and council tax.
Only science-based businesses can claim R&D tax relief. Any business that can prove it has achieved an advance in overall knowledge or capability in a field of science or technology can apply for R&D credits.
Business owners can get trips and items for ‘free’ by expensing them through a business. Expenses must be tracked and reported to HMRC. There is tax relief available on specific expenses, but not every expense qualifies and even those that may not recoup the full cost in relief.
If a business is making a loss, it doesn’t need to file tax returns. Loss-making businesses are still beholden to tax obligations. Crucially, they can also claim for tax relief for losses incurred – so filing your tax return correctly isn’t just a requirement; it could also be a financial benefit.

Types of Tax Relief

Let’s take a detailed look at each potential tax relief you can claim. Some will apply to you, while others may be relevant in the future. Jump to a specific section if you need to know something crucial, or read on to get an overview of the UK’s tax relief offerings. 

Pension tax relief

Pension tax relief is perhaps the most widely-used tax relief, to the point you may not even know you’re claiming it. Pension tax relief is calculated based on your income tax and will usually be applied whenever you pay into a pension.

In some cases, if you don’t pay enough income tax, you might not be eligible for pension tax relief – or you may have to manually claim with HMRC. 

Employer's pension schemes

Claiming pension tax relief happens in two ways: relief at source or net pay. If you’re employed, your employer chooses which system they want to use. For personal pension contributions made by self-employed people, you’ll always use relief at source. 

Relief at source

Relief at source sees the government ‘boost’ your pension contribution by reducing the tax you pay. It essentially works as follows:

  • Your tax is calculated from taxable earnings, and deductions are taken as standard.
  • Your pension contribution amount is deducted from your after-tax pay and sent to your pension provider. In the case of self-employed workers, you make your contribution from your taxable earnings directly instead. 
  • The pension provider themselves claimed 20% tax relief from the government, which is added to your pension pot. 

As an important note for employees on part-time contracts, relief at source works even if you don’t qualify for income tax. 

Net pay

In a net pay arrangement, you instead make pension contributions before tax – which means you’ll pay less tax as your tax obligations will be calculated based on a lower amount of income. 

For employees, this, unfortunately, means that sometimes if an employer chooses the net pay system and you don’t meet the Personal Allowance income tax threshold, you’ll lose out on potential tax savings. Measures have been suggested to remedy this, but nothing has been put into place as of 2023. 

Self-employed schemes: personal and director’s pensions

Personal pension schemes are also eligible for tax relief. You basically receive a bonus relief amount against your pension payment, meaning HMRC is actually encouraging self-employed people to save for retirement. 

Pension contributions generally receive 25% in tax relief, though this will vary depending on how much income tax you have to pay. Higher earners can actually get even more back from pension contributions, making them one of the most advantageous ways to save efficiently. 

Business owners who pay their pension pot via a director’s pension from their business accounts see their relief applied differently. Director’s pensions are classed as a business expense, so you’ll get relief against the marginal tax rate you’re on AND corporation tax. 

Pensions are tricky, but they’re worth exploring early in your career to ensure you have the most enjoyable, hassle-free retirement possible. Get specialist advice on pensions and investments here. 

Charitable donations tax relief

When you donate to charity from a business, or even as an individual, you’ll be eligible for certain tax reliefs. So not only will you feel good about yourself, you’ll also save on your tax bill as a result. Win/win. 

Gift Aid

When you donate money from your bank account, the government assumes it has already been taxed. For those paying the 20% basic rate, this means any donation you send to a charity has been made out of income that has been reduced by 20%. 

Gift aid allows charities to claim that 20% back from the government, essentially topping up the donation to make it more valuable than before. 

If you’re a higher-rate taxpayer, you can then claim some tax relief in your self-assessment by telling HMRC about gift aid payments when you fill it out. 

Donations to charity

Limited companies have to pay corporation tax, which can be a significant cost each year. If you make charitable donations from your limited business, whether that’s money, equipment, land, property or shares, or sponsorship payments, you can claim tax relief to reduce your corporation tax bill.

Working out how much you can save is simple – check that the donations meet HMRC’s criteria and then deduct the total value of all donations from your total business profits.  

Tax relief for landlords

Tax relief was big news in the landlord sector not too long ago, when the government phased our mortgage interest tax relief, which used to allow landlords to offset 100% of the interest paid on their mortgages against tax. This has now been replaced with a scheme where you receive a flat relief of 20% against your annual mortgage interest payments. 

The other tax reliefs a landlord can claim are around certain purchases. Depending on whether they let commercial or residential property, landlords can claim for certain costs such as repairs, maintenance and rental insurance. 

The costs you can’t claim anything back for include costs that you incur when you first purchase a property, such as stamp duty, legal fees, surveys etc. If you wanted to save tax through these acquisitions, you could instead set them against capital liabilities when you sell the property on.

If you want to diversify into holiday home ownership, furnished holiday let operators can claim 100% of their mortgage interest against their taxable profits – a big benefit over the more traditional buy-to-let structure. 

Tax relief for self-employed individuals

Self-employed people, typically sole traders, have access to many different types of tax relief which are applied to their income tax – most of which must be calculated and claimed for manually through a self-assessment tax return. 

Claiming tax relief reduces your overall income tax liability, resulting in more money in your pocket. 

When considering what you can claim, understand that HMRC wants evidence that the expenses you claim against are used exclusively for business purposes. This means you can purchase items like office equipment, stock, marketing services etc. 

Once you have calculated your allowable expenses, add them to your personal allowance and deduct both to find your taxable income. For example, if you made £50,000 in a year and had £2000 worth of expenses, you’d subtract £2000 and the £12,500 allowance to have a taxable income of £35,500. 

Self-employed people can also claim other types of tax relief, such as pension contribution relief as we explained earlier in this guide. 

Tax relief for working from home

Another form of tax relief you can claim for is claiming against expenses incurred during working from home. This relief is applied against household costs that are relevant to work, such as business phone calls and energy. All claimable costs must only be used for work – expenses that you use privately too, such as broadband, are not eligible for relief. 

Mileage tax relief

Mileage Allowance Relief (MAR) is a concept designed to help employees and self-employed people recoup the costs of fuel used for business travel. 

If you use your own private vehicle, you can claim tax relief against any ‘approved’ miles. Keep records of any business journeys in private vehicles. When you calculate how much you can claim, remember to subtract any mileage allowance your employer pays you. 

Typically, in a car and van, you can claim 45p per mile for the first 10,000 business miles travelled in a tax year. Once you exceed that 10,000 limit, it drops to 25p. 

Company car owners claim differently. You’ll need accurate records to show the cost of fuel used during business trips in the company car. If your employer repays you for the fuel, you can claim relief on the difference. 

Professional fees and subscriptions tax relief

If you subscribe to a professional organisation for work purposes, you may be able to claim tax relief. You can claim professional fee and subscription relief only if:

  • You pay a professional membership fee to an organisation which enables you to do your job 
  • You pay an annual subscription to any approved bodies, provided being a member is relevant to your job 

Some professional subscriptions are not eligible for tax relief as HMRC does not recognise them, so be sure to check using the link above. 

Tools and uniform tax relief

Tools and uniforms you have to purchase to do your job may also be eligible for relief. Tool relief is designed mainly for the construction industry and can be claimed by employees or self-employed people. You can claim back tax on any work tools you buy or hire within a tax year. You can also claim for protective clothing and other specific uniforms – but not for generic items of clothing. 

Construction isn’t the only sector where specialist tools or equipment can be claimed against. Anyone who has to buy or maintain tools as part of their job may be eligible, but it’s best to consult HMRC if you’re unsure. 

To claim for tools or uniforms, you’ll either need to claim manually and provide detailed receipts or register for flat-rate expenses. 

To make life easier for employees and other people who don’t want to keep receipts for every purchase, you can claim tax relief under flat rate deductions – which offers a minimum of £60 deducted from your tax bill each year. We’ve explained this system at length in our guide, so head there if you’re interested. 

Marriage tax relief

In a marrage, if one person is the main earner and the other is a stay-at-home parent or doesn’t work, Marriage Allowance helps ensure the non-earning partner doesn’t lose all of their tax relief benefits. 

If you don’t work at all, or earn less than the Personal Allowance limit and therefore don’t pay income tax, you can instead offset a portion of that unused personal allowance against your spouse’s tax bill.  

Marriage allowance lets you transfer £1,260, or just over 10%, of your allowance to your partner. This then helps reduce their overall tax burden and ensures your own entitlement doesn’t go entirely to waste. 

Childcare tax relief

If you have children, you may be able to claim tax relief against the price of childcare. 

The government is currently championing its tax-free childcare system, which offers up to £2000 per year per child. If you’re eligible for the scheme, it effectively means that for every 80p you put into a tax-free childcare account, the government provides 20p – equivalent to your basic income tax rate. 

All single people in work, whether that’s employment or self-employment, are eligible for this relief. If you’re in a partnership, both of you need to work. 

To learn more and register, visit the government’s Tax-Free Childcare portal. 

Flat rate expenses tax relief

Flat rate expenses are a specific type of relief designed to make it easy for employees and some self-employed people to claim relief against work expenses without having to track payments and provide individual receipts. 

You need to claim for flat rate expenses, unless your employer has already done it for you. Depending on your sector and job role, HMRC will have a pre-negotiated fixed amount (‘flat rate’) that it will deduct from your tax liability. 

Learn more about flat rate expenses in our comprehensive guide here. 

Eligibility and Claiming Tax Relief

Phew, that’s the full list of reliefs available in the UK right now. If you’ve reached this point, your head is probably swimming with the various expenses and costs you might now be able to claim for. 

Fortunately, working out what you’re eligible for and submitting a claim is easier than it has ever been due to the advancements in digital technology and the support of teams like our own here at Crunch. 

Determining eligibility for tax relief

Working out what tax reliefs you’re eligible for is a matter of assessing your work situation and personal circumstances. Once you know which reliefs apply, you can check eligibility via the government’s website. 

In general, provided you pay income tax at the basic rate or above, you’ll be eligible for some form of tax relief. Exactly which ones you can claim for depend on your employment status and activities. 

Tax relief eligibility checklist:

  • Do you pay into a pension?
  • Have you made charitable contributions in a tax year?
  • Are you employed or self-employed? 
  • Do you run a company? 
  • See which reliefs your business is eligible for here
  • Do you have children? 

How to claim tax relief

Claiming tax relief is fairly straightforward, though the system you use depends on what type of relief you’re claiming for. To claim, you’ll first need a personal tax account using a Government Gateway ID. 

If you believe you should have had relief applied during previous years too, you may have overpaid tax and therefore need to apply for a tax rebate.

To claim tax relief, you can either complete a tax return or speak to your employer and have your tax code adjusted. In some cases, HMRC will spot that you’ve overpaid taxes and will send you a P800. 

Claiming through a P800 tax calculation

Sometimes, HMRC may identify that you’ve paid too much tax and will issue you a P800 tax refund. If you do, check the details given on the P800 against any reliefs you think you may have access to – as you could claim even more than HMRC has awarded via the P800.

Claiming through self-assessment

The most common route for most people to claim the majority of their tax reliefs is through self-assessment. This is an online process where self-employed people declare their income and expenses, so naturally, it’s also where you will claim most of your available relief. 

How far back can tax relief be claimed?

If you believe you’ve missed out on tax reliefs and subsequently overpaid tax, you can submit a tax rebate claim – but you only have four years from the tax year you suspect you overpaid in to claim. 

We’ll Crunch the complexity out of your tax relief

As this looooong list demonstrates, there are lots of different types of tax relief available to UK individuals and organisations – from expenses to pensions to mortgage interest and more. 

Rather than worrying about each individual type of relief that might apply to you, why not just work with Crunch? We offer digital platforms for self-employed people and businesses that make all of your accountancy obligations easier. Don’t miss out on the potential savings associated with tax reliefs – call us now to see how we can help.  

Frequently Asked Questions

  • Is tax relief a refund?

It depends on when you claim – most forms of tax relief are not refunds, they are more similar to discounts because they are applied against your tax liability for the year. If you submit a claim for a previous year, you’ll instead be issued a refund. 

  • Can tax relief be backdated?

Yes – though only for four years. 

  • Can I claim tax relief for travelling to work?

Not usually, unless it’s to a temporary place of work or to visit a client/customer in place of travelling to your usual place of work. 

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Updated on
January 5, 2024

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