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Tax can be confusing but the often misunderstood truth is HMRC will never try to cheat you, and they don’t want a penny more of your money than you owe. So, why do so many people end up being owed tax refunds that they never claim – or even know about? The honest answer is that most people never realise that they qualify for a tax rebate at all. Armed with the right information and paperwork, there’s no reason why you should ever lose out.
A tax rebate is a payment you can claim from HMRC when you’ve paid more tax than you owe for any reason. When you’re an UK employee, your Income Tax and National Insurance Contributions (NICs) are taken from your pay automatically before you get it. However, when you’re spending your own cash on some of the key necessities of your work, a lot of those costs can earn you some tax back from HMRC.
You’ve got to be careful, though. It’s not as simple as “claiming back your expenses”. For one thing, you’re really only claiming back the tax portion of any costs you’ve covered out of your own pocket. On top of that, not every cost you shell out for will count toward your tax rebate. Confusion over tricky rules like these is what trips so many people up – or puts them off claiming altogether.
You could be owed a tax rebate if you:
Claiming a tax rebate isn’t supposed to be a huge hassle. You can fill in the forms online on the HMRC website, or ask a rebate specialist to do the legwork for you. The thing is, the taxman isn’t going to fork over a big sack of cash just because you tell him you’re owed it. HMRC will expect proof of every penny you’re claiming, and that means doing some paperwork. Some of the most common examples include:
If you’re ready to make your tax rebate claim, you can start the process off online on the HMRC website. Just follow the step-by-step guide. You still need to have done your homework, though, since you’ll still be expected to prove every penny you’re owed. “Quick and easy” might be good enough if your expenses are really simple, but if you’re putting in a more complex claim then you could easily end up missing out by not doing a more thorough job.
You can reach the official HMRC tax refund hotline on 0300 200 3300. Be prepared to wait on hold for some time.
Once you’ve put your tax rebate claim together, HMRC has to look it over and approve it. This generally takes about 8-10 weeks. Depending on your situation, though, the timing can vary quite a bit. For example, if HMRC has additional questions or needs more information, this can obviously add extra time to the process.
The main form most people will need to claim their yearly tax rebates is called a P87. It’s used to claim tax relief on your work-related expenses, and you can find in on the HMRC website. On top of that, there are a few other pieces of official paperwork that you’ll probably find essential to get your rebate paid. Your P60, for example, is used to prove how much tax you’ve paid on your earnings over the tax year. If you’ve left a job during the year (which is another reason why you might be owed some tax back), then the P45 you get from your former employer will show a running total of the tax you’ve paid so far. If you’ve been getting any “benefits in kind” from your job (including things like company cars or interest-free loans) then you might owe some tax on them. You should get a P11D form from your employer to detail all of this, unless they’re already taking the extra tax out of your pay.
When you’re self-employed, you don’t use the Pay As You Earn (PAYE) system to handle your Income Tax and National Insurance Contributions. Instead, you report your income and expenses to HMRC by submitting yearly Self Assessment tax returns. These tax returns tell HMRC all about the money you’ve got coming in and going out. The Self Assessment rules mean that the money you spend to keep your business running count against the profits you’re being taxed on. Every eligible expense reduces the tax you pay. It’s a bit like getting an instant tax refund.
One of the main things that trip people up about Self Assessment is understanding that they’re supposed to file tax returns at all. Even if you’ve already got a PAYE job, if you’ve got other sources of untaxed income (if you’re renting out property, for instance) you might have to register for Self Assessment and start sending tax returns to HMRC.
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If HMRC realises on its own that you’ve paid too much tax, then you might get a P800 tax calculation form in the post to explain what happens next. When that happens, any refund you’re owed should be paid automatically. However, most of the time, HMRC simply won’t have enough information to know that you’re owed a refund at all. For example, it won’t know how far you’ve travelled for work or what you’ve spent on the upkeep of your equipment and tools. That’s why you have to make a tax refund claim to get back the money you’re owed. It’s also why you need to keep proof of what you’ve spent in the essential costs of your job.
While many people go the DIY route when claiming their tax rebates each year, a range of professional services are available for those who want a more thorough job done by an expert, such as RIFT. A traditional accountant will usually be able to take care of the basics and keep you out of trouble, but there are also companies that specialise in handling every aspect of tax rebate claims, from calculating your work mileage and costs to taking care of the Self Assessment forms you need to file if your qualifying expenses top £2,500.
When you travel to temporary workplaces for your job (remember, daily commutes to a permanent site don’t count), HMRC has set out some Approved Mileage Allowance Payment (AMAP) rates you can claim to lighten the load of your fuel and maintenance costs. The current AMAP rates look like this:
If you aren't already getting these full allowances from your employer, you can claim back the difference from HMRC.
The main thing to realise about tax rebates is that they’re not some magic windfall or dodgy way of “cheating the system”. The money you’re claiming back is yours by law. While the PAYE system does a decent job of working out the tax you owe on your basic salary, it falls flat on its face when it comes to critical expenses like travel to temporary workplaces. Unless you let HMRC know exactly what you’re spending just to keep doing your job, the taxman has no way of giving you the tax relief you’re owed. HMRC will never deliberately rip you off, because it only wants the exact tax you owe and not one penny more.
The tax rebate system is a way of levelling the playing field with HMRC, giving it the information it needs to get your tax calculations right. Of course, since the taxman’s not a mind reader, he can’t always predict what your expenses will be. Every time you reach into your own pocket to pay for the essentials of your work, a chunk of the price you’re paying is tax. That chunk is what you’re claiming back in your refund, and it’s why you have to keep good records of your spending top get back everything you’re owed.
In general, you’re usually able to decide how you want your tax rebate to be paid out. Some people prefer to get a cheque in the post, while others opt for a direct transfer to their bank accounts through the Bankers’ Automated Clearing System (BACS). Keep in mind that the way you decide to be paid may affect the amount of time it takes before your money arrives.
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