Unlocking Your Tax Refund: 7 Effective Strategies

Have you paid the correct amount of tax each year? You may think that the answer is yes, perhaps because your taxes are calculated through your employer's payroll or prepared by your accountant. Even though this may be the case, read the following 7 strategies to find out what your employer or accountant may have missed that is stopping you from getting that tax refund into your bank account.

1 – Employment expenses

• Working from home allowance, professional fees subscriptions, uniform costs etc can be deducted against your taxable earnings.

• Consider if you have any qualifying employment expenses that have not been reimbursed by your employer.

2 – Check you have fully utilised your personal allowance

• The personal allowance is £12,570 for the 2023 tax year

• Allocation of personal allowance can particularly be an issue if you have more than one job in the tax year or have changed jobs in the tax year.

• If you have two jobs, you may have the personal allowance allocated in full to one of your jobs. This can be an issue if you have higher earnings in the job that has no personal allowance allocated, as this is done through the tax code which is used by your employer for your wages calculation.

• HMRC should perform a recalculation annually for your employment earnings and send a P800 letter if you are due a tax refund, however, in some instances, it can take some time for this to be processed.

3 – Check your pension contributions have been deducted from gross pay

Very rarely but in some circumstances employers operate a net pay deduction for pension contributions that you contribute through your wages. If you are a higher rate tax payer (paying tax at 40%) you will need to obtain tax relief for these contributions by completing a self-assessment tax return (assuming that the contributions are made through a qualifying scheme). This means that tax relief for pension contributions is not relieved at source (no deduction on gross earnings before tax). Instead, the pension scheme will obtain the basic rate tax on your behalf by increasing your contribution. However, if you are a higher rate tax payer, the additional tax will need to be obtained by yourself through extending your basic rate tax band on your self-assessment.

4 – Check if you have paid any gift aided donations eligible for tax

Eligible donations will allow you to increase the basic rate tax band for yourself, therefore this is useful if you are paying tax at a higher rate as this will provide tax relief. For example if you made payments of £100 in qualifying gift aided donations, you would be able to claim an additional tax refund of £25 or 20% on the gross value of £125. As the charity will claim the basic rate tax suffered therefore increasing your donation value to £125.

5 – If trading as a sole trader business consider utilisation of business trade allowance vs expenses

If you have minimal expenses and the allowance is greater than your expenses, it would be more tax efficient to use the £1,000 business trade allowance. However, if this allowance is used you cannot claim relief for business expenditure in addition to the allowance.

6 – If you are married consider transferring personal allowance using marriage allowance

The allowance lets you transfer £1,260 to your partner. Therefore obtaining up to £252 of tax savings.

• This can be useful if an individual is not using all of their personal allowance for their earnings. Or if their partner has no taxable income.

• As you can transfer a proportion of your personal allowance to or from your partner, resulting in the partner with the higher income obtaining more tax relief. Therefore as a couple you will reduce your overall tax liabilities.

• Consider the eligibility requirements: you or your partner must not pay income tax higher than the basic rate, you or your partner do not pay income tax or your income is below your personal allowance and you are both married or in a civil partnership.

7 – Recalculate tax paid, use a tax calculator or an accountant

As the wrong tax code could have been used by your employer when processing your payroll, also national insurance changes (several in 2022) may not have been updated in your payroll. Therefore it is important to check the calculation, ensuring no errors have been

made. The key is not to rely on just your employer making the correct tax deductions. As like any area in business mistakes can happen so it’s important that someone is checking up.