Tax relief - John C. Kirk
Sep. 9th, 2009
11:49 pm - Tax relief
In the last few years, I've seen some adverts about completing tax returns, e.g. Moira Stuart sitting in an understairs cupboard. However, I've ignored them; I only work for a single employer, and they deduct income tax from my salary each month (PAYE = Pay As You Earn), so I don't have to do a tax return. I do my own calculations in Excel, to see how much income tax I'd expect to pay each year, then compare that to what I've actually paid: if the difference is less than £10 (in my favour or theirs), it's not worth disputing. (I also do another Excel file for National Insurance contributions.)
Meanwhile, I've also heard various people use the phrase "tax deductible", but I've never been quite clear on what that means. I think I now understand it, but I also think that lots of people misuse it, which leads to extra confusion. In particular, it turns out that I can claim some money back because I'm a BCS member. If you're a member of any professional organisations, this may apply to you too.
Basically, if you pay for something that's essential for your job, you can pay for it out of your gross salary (before tax is deducted) rather than your net salary (after tax is deducted). So, it's similar to the cycle to work scheme. For instance, if you earn £42,000 a year (gross), and you pay £100 to the BCS, you only have to pay tax on £41,900. That means that you effectively only pay £60 for your membership, since you'd be paying 40% income tax at that salary. The BCS have a complete list on their website, showing how much tax relief you can claim for each level of membership, for either higher rate or lower rate tax payers.
NB Some people think that tax deductible means "I subtract the cost of my membership from my income tax, so it's effectively free." This is wrong!
To be more precise, you don't get a discount from the BCS; you still pay them the full price for your membership. At the end of the financial year, you can then submit a tax return, and claim a refund on part of your tax. This also brings up another point: you can't get a refund for something you haven't paid. For instance, suppose that you're at university, earning £6000/year and paying £25 for student membership. Since you earn less than the personal allowance (currently £6475/year), you won't pay any income tax, and you can't claim any tax relief.
Similarly, you can't claim tax relief if your employer pays for the professional membership on your behalf, which would typically be the case if it's actually a requirement for your job. For instance, pharmacists need to belong to The Royal Pharmaceutical Society of Great Britain. So, this leads to slightly odd criteria: if you're claiming relief for something, it ought to be necessary for your job, but not something your employer would reimburse you for.
You can claim tax relief for various things, e.g. equipment, and the HMRC website gives the example of a hairdresser buying their own scissors. I assume that those are assessed on a case by case basis, but it seems to be a bit simpler for professional membership, since the HMRC have prepared a list of approved organisations. In particular, they say:
An annual subscription to a body shown in the list as approved by HMRC is allowable where:
- employees pay this out of their earnings from an employment
- the activities of the body are directly relevant to the employment
The activities of a body are directly relevant to an employment where the performance of the duties of that employment:
- is directly affected by the knowledge concerned
- involves the exercise of the profession concerned
So, I get the impression that it's pretty much a rubber stamp exercise. In my case, the relevant organisations are:
- The Institution of Analysts and Programmers (listed under A)
- The British Computer Society (listed under B)
- The Royal Institution of Great Britain (listed under R)
I don't foresee any problems with the IAP or BCS, since I work in IT. As for the RIGB, the HMRC description says "Concerned with the whole field of science and scientific research", so that's pretty inclusive.
Actually, I'm only currently a member of the BCS; my subscription to the other two organisations has lapsed. However, I can backdate my claim. The main tax relief page says:
"If you haven't completed a tax return you've got five years from the 31 October following the end of the year concerned to get the relief. If you've previously completed a return it's five years from 31 January following the end of the year concerned."
I've never done any tax returns, so the October deadline is the relevant one for me. This means that the earliest year I can claim for is 2003/2004: that tax year ended in April 2004, and five years after 31-Oct-2004 is 31-Oct-2009, i.e. next month. The HMRC also say: "The first time you ask for tax relief for your expenses you'll have to contact us in writing." So, I've written to them, asking for tax relief in 2003-2008. I could also claim for 2008/2009, but I'm leaving that for now; as I understand it, once they've approved the first claim, I can then submit a tax return online for last year (up until 31-Jan-2010), which will include my claim for tax relief.
I'm not quite clear on how much supporting evidence you need. I logged into the BCS website and printed out my receipts from 2005 onwards, so I included them with my letter. When I submit an online tax return, I won't be able to include a receipt, so I assume that they'll just take my word for it, if they've previously accepted the written claim. I can't access my receipts from 2003 or 2004 through the BCS website, so I hope that I won't need them; if the HMRC ask for them, I'll contact the BCS to see whether I can get hold of them. Similarly, I don't have receipts from the the IAP or the RIGB (at least not readily to hand), and it might be a bit more tricky to ask them for a favour since I'm no longer a member. Still, I'll see what the HMRC say, then take it from there.
Normally I'd wait until this was all finished before I wrote the blog post, so that I could tell the whole story at once. However, when I took a year off work to do my MSc I had to reclaim tax in two consecutive years, and it took about two months to process each claim and refund the money. So, if I wait until I get the results, other people may miss the Halloween deadline.
Anyway, the upshot of all this is that I should get a nice little windfall. I won't be able to claim all of the tax relief that I would have been eligible for (I joined the BCS in 1995), but I'll make sure that I submit tax returns from now on, so that I stay on top of this. If anyone else is in a similar situation, hopefully this will be helpful to you.