With the 31 January annual self-assessment tax return filing deadline fast approaching, now is an opportune time to ensure that all available reliefs and allowances are claimed before filing your tax return. This article highlights what can still be done now to mitigate 2018-19 liabilities, and looks at the reliefs and allowances that can be claimed.
Gift Aid donations
By making a Gift Aid donation in the current tax year (ie 2019-20), prior to filing a tax return (no later than the statutory filing deadline of 31 January 2020), the donation can be carried back for relief in 2018-19. If you pay tax at either the higher or additional rates, or if your income exceeds the £100,000 threshold at which the personal allowance starts to be withdrawn, carrying back the donation can offer a cash flow advantage as well as mitigating the loss of personal allowance.
Trade losses
Trade losses incurred in the current tax year can be carried back and relieved in 2018-19, accelerating the tax relief. Such losses can usually be claimed against your income and/or capital gains.
Marriage allowance
The marriage allowance enables one spouse to transfer 10% of their personal allowance to the other spouse, where neither is a higher rate taxpayer. The claim needs to be made online and can be backdated to 5 April 2015, so long as both are eligible.
Tax-efficient investments
Investments made under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) in the current tax year can be carried back for relief in 2018-19, potentially providing both income tax relief and capital gains tax deferral relief. The rules are slightly different for the two schemes, so care is needed when making the claims.
Other reliefs
Other reliefs available to reduce income tax liabilities include:
Pension contributions
Where you make pension contributions from your net pay, include the net contributions on your tax return to obtain higher and additional rate tax relief where relevant.
Loan interest
You can claim income tax relief on loan interest paid on certain qualifying loans taken out to invest in a business.
Gross trading/property income
Where your annual gross trading and/or property income is £1,000 or less, the income does not need to be reported to HM Revenue & Customs (HMRC). Where your gross income exceeds £1,000, it will need to be reported and you can choose to claim actual expenses or the £1,000 allowance. If your actual expenses are less than £1,000, it will be more beneficial to claim the allowance.
Rent a room
If you rent a room in your house, where the gross rents are less than the rent-a-room threshold (currently £7,500) the income is exempt from tax and does not need to be reported to HMRC. If the gross rents are equal to or exceed the threshold, only amounts more than this are taxable, but there is no option to claim actual expenses. If your actual expenses are more than £7,500, these can be claimed instead of the allowance.
Working from home
If you are a sole trader and use a room in your home as an office, an expense for the running costs can be claimed against income tax. Either a proportion of actual expenses are allowed, or a standard claim can be made using HMRC’s standard expense rates.
Averaging
Farmers, market gardeners and creators of literary or artistic works who run their businesses as sole traders or in partnership can claim to average their profits over two years (five years for farmers and market gardeners). Averaging claims can reduce your overall tax bill, by evening out fluctuations from one year to the next.
Mileage
If your employer reimburses your business mileage at a rate lower than the current standard mileage rate of 45p per mile for the first 10,000 miles and 25p per mile thereafter, you can claim the difference in your tax return.
Expenses
If you are an employee, you may also be able to claim for any other business expenses not reimbursed by your employer, such as travel (not including home to work), the cost of buying small items of equipment needed to do the job, professional subscriptions etc.
Upkeep of tools/clothing
Employees working in certain industries, such as agriculture, building and engineering, can also claim fixed rate allowances for the upkeep of tools and special clothing. These rates are set by HMRC. Alternatively, you can claim a deduction for actual expenses if this is more beneficial.
There are a myriad of reliefs and allowances, but with ever-changing tax legislation and increasing complexity, you may find it difficult to identify the claims you are entitled to make. Fortunately, it is not too late to make claims in 2018-19 tax returns in order to reduce tax payments falling due on 31 January 2020. Please contact us if you would like any assistance in dealing with your tax affairs.
In summary
Actions to take before the tax year end
- Identify any claims that can be made now but carried back to the 2018-19 tax year.
- Don’t forget to claim relief for pension contributions and Gift Aid.
- Use the £1,000 trading income allowance, or the £7,500 rent-a-room allowance if more beneficial.
- Use of home as office can be claimed at a standard rate using HMRC’s simplified expenses, so there is no need to keep detailed records.
- Farmers and artists should review profits over the last two or five years to see if averaging would be beneficial.
- Employees can claim business expenses not reimbursed by their employer.
- Employees working in certain industries can claim fixed allowances for the upkeep of tools and special clothing.
