VW Taxation Ltd
Tax Rebate Services
Tax Rebate Specialists Based in Portsmouth
Have you ever wondered what exactly a tax rebate is? Have you ever wondered what constitutes receiving a tax rebate and how much tax you are due to get back? How is a rebate calculated?
These are common questions that many of us grapple with every year, and the rules and regulations established by HMRC only exist to make the issue even more confusing. This article will serve as a guide to answer these questions and more about a process that occurs annually, yet is easily misunderstood and often ignored – how to claim a tax refund.
In this article, you will learn:
- What a rebate tax is and how it is calculated
- How to go about the process of receiving a tax rebate
- How to know exactly if you are due a tax rebate
- If tax rebates occur automatically or, if there is something you need to do first to ensure you receive a tax rebate
Tax rebates are only one aspect of the larger protocols and regulations that define the HMRC. You have guessed correctly if you are assuming that this process is confusing, but fear not, this guide will explain the entire process that goes into a tax rebate, which will lead to the tax rebate process specifically.
What Is a Tax Rebate?
The process behind tax rebates is very simple in practical terms, if you are one of the millions of people who fall under the Pay As You Earn process (PAYE), your employer is handling all of the essential reporting and collecting requirements as established by HMRC. All of the tax collected by your employer throughout the tax year is then sent to HMRC, which then establishes if you are eligible to receive a tax rebate.
Although easy to understand in practical terms, the process can get incredibly complex for a multitude of life and work situations. The government states the following reasons as possible ways you may be due a tax rebate:
- pay from your current or previous job
- pension payments
- income from a life or pension annuity
- a redundancy payment
- a Self Assessment tax return
- interest from savings or PPI
- foreign income
- UK income if you live abroad
- fuel costs or work clothing for your job
Let’s explore each of these reasons for a better understanding of what each means in the example of a tax rebate.
Pay From Your Current or Previous Job
This is the easiest process by far since the PAYE system through your employer does all the work for you. So, what is the basis that allows a tax rebate?
Tax years in the UK run from 6 April-5 April in an annual fashion and this date makes up what is known as a tax year. Tax years essentially are better understood as the tax paid from 1 January-31 December preceding a tax filing deadline of 5 April the following year.
Now for the tricky part, how income tax is calculated based on your work and how to get a claim back based on an overpayment of tax. How much tax you pay is typically based on the following:
- Each UK worker, including workers in Scotland, has a £12,500 personal allowance allotted to each worker in a tax year. This means that tax is calculated once this threshold has been met.
- If you have a basic income rate, your tax rate is 20%.
- The higher rate is taxed at £37,501- £150,000 at a 40% tax rate.
- The top rate is known as the additional rate for UK citizens with special tax code categories. Anything over £150,000 is taxed at a rate of 45%.
If you are working steadily through the year and applying the maximum amount of pension contributions to your pension out of each net payment throughout a tax year, there is a good chance you will receive tax relief on the overpayment of tax related to your pension. Tax relief on pension payments is calculated with the following in mind:
- You can claim tax relief on pension payments if your employer takes workplace pension contributions out of your pay before deducting Income Tax
- If your rate of income tax is 20% your pension provider will claim it as tax relief and add it to your pension pot
- Your pension scheme is not set up for automatic tax relief
- Someone else pays into your pension
So, if you pay in excess of these guidelines for your pension, a refund of tax will reflect this overpayment.
Income From a Life or Pension Annuity
A Redundancy Payment
Redundancy pay is tax-free up to £30,000, however, there may be instances where you receive more in redundancy pay and a subsequent tax rebate is then available for possible overpayment of tax on redundancy pay. Always ensure you make a claim for a possible tax rebate on redundancy pay as this can be one aspect of a tax rebate that is frequently forgotten, especially if you get £30,000 or over in payments.
A Self-Assessment Tax Return
Self-employment is perhaps the largest arena in the UK workforce that is prone to overpayment of taxes. If you are self-employed in the UK, you will need to file a tax refund if your turnover is more than £1,000 within a tax year.
Because most self-employment ventures operate just as lucrative as employers utilising the PAYE system, many self-employed people may need to pay tax throughout the year, which are prone to overpayment due to the inconsistencies in proper calculations of tax rates.
This almost always is going to ensure that you are due a tax refund as soon as you claim all of the tax you paid within a year.
Interest From Savings or PPI
If you have taken out a PPI (Payment Protection Insurance) claim in the previous year, you could get a tax refund on this claim, especially if you have taken out a PPI claim in the last four years. The same applies to interest accrued on a savings account.
Four years is the time frame that HMRC most looks at when calculating a possible tax refund for any claim back in the previous four years, which is the standard amount of time a UK worker can initiate a claim for a refund. However, this changed in 2016 with the initiation of the personal savings allowance, which saw the rate of tax on interest slashed for the first £1,000 saved.
Now, it is routinely possible to get a tax refund based on the overpayment of taxed interest.
If you are a UK resident, you will need to pay tax on any foreign income that you may have accumulated throughout the year. You will typically claim a tax refund on this taxed income if you exceed the tax rate of the code you fall into.
UK Income if You Live Abroad
The same rules on receiving a tax refund from foreign income also apply to any UK income you receive even if you are living abroad. You can claim a rebate for any of the following if you live abroad:
- rental income
- savings interest
Fuel Costs or Work Clothing for Your Job
This example is also under-utilised by many UK taxpayers who may not realise they can get tax back on costs for fuel or uniforms associated with work. To get your tax back, be sure to claim these deductions when you file your taxes in order to get the proper refund.
So, How Do I Claim a Rebate?
How Do You Get a Tax Rebate?
The process to claim a tax refund if you have overpaid tax on work performed throughout the year. The process of receiving a refund can be confusing, therefore, a range of possibilities may occur regarding a refund.
HMRC may contact you to let you know if you are due a refund due to a claim that shows an overpayment of taxes throughout the year for work performed. This will usually be a form P800 sent directly from HMRC which will give you instructions on possibly filing the claim online to avoid a long wait for a paper cheque.
If you are self-employed, making payments on your taxes for work you performed throughout the year is the easiest way to have your claim calculated. An annual Self Assessment tax return will adequately reflect any refund amount you may be owed, whereas waiting to pay at the end of the season could be a gamble since you may not have enough of a refund to pay all the taxes owed.
If you are self-employed and ever in doubt of what can be a confusing process, tell us all of your concerns and an experienced specialist will get back to you promptly to thoroughly explain the process and answer all of your questions.
How Do I Know if I'm Due a Rebate?
This is really a question that has two answers: one practical and one based on monitoring. As previously mentioned, if you have overpaid taxes, which is common both with the PAYE system and in self-employment, HMRC may send a form P800 typically between June-October each year letting you know the amount paid.
It will require you to file your tax return for the calculations to show a possible overpayment of taxes, by which you can then claim a rebate if you qualify. Self-employment is usually the trickiest process to handle when it comes to filing a tax return.
For example, if you are a construction worker, your jobs will no doubt be sporadic throughout the year, with some jobs paying much more than others. All of this can become quite overwhelming when you add in all the possible rebates you could possibly receive for travel, fuel costs, and work-related expenses for a large variety of jobs over a twelve-month period.
It is easy to forget exactly what expenses you can claim on your taxes and what will not pass for an expense to HMRC. All of this, added to the process of keeping track of your taxes through quarterly payments more often than not leads to no rebate whatsoever or worse, a need to pay more taxes to HMRC due to underpayment throughout the year.
The PAYE system handles most of this for an employee, yet certain jobs in the self-employment sector can benefit greatly from an experienced advocate who specialises in self-employment taxes.
Do Tax Rebates Happen Automatically?
In the digital age, we have all become accustomed to simply filling out the information in a P800 or SA100 into a software that automatically calculates taxes to alert of a possible refund. Furthermore, the PAYE system for standard employees makes the process even simpler by adequately keeping track of taxes being paid to HMRC throughout the year.
Additionally, you can also see an automatic rebate even if you are self-employed granted you have kept track of every payment and expense you have gone through throughout the year.
Yet, there are always possible loopholes that can arise for self-employed workers particularly. All of the burden concerning taxes rests on your shoulders when you work for yourself or perform contract work.
Knowing which forms to fill out and how to fill out proper expenses into the corresponding lines of code can be an overwhelming task, which is why many self-employed workers in the UK miss out on possible rebates each and every year.
Remember, the PAYE system is the only true way to ensure that a refund is sent automatically, hiring a specialist for self-employed taxes saves you a lot of time and energy throughout the year regarding the process of keeping up with taxes and expenses.
Talk to VW Taxation for Advice
Rebates are wonderful payments to receive if you have overpaid taxes throughout the year. There are many reasons why you may be owed a rebate, however, not all of the numerous reasons are utilised due to so much burden being placed on a taxpayers shoulders.
This can be especially difficult for those who are self-employed, since so many expenses and deductions can occur throughout an entire year that it becomes madness to try and keep track of everything. This is why it is crucial for those who are self-employed to use the services of a specialist for this aspect of taxes.
At VW Taxation we pride ourselves on specialising in taxation services for all tradesmen registered under the Construction Industry Scheme (CIS). If you fall into this category and ever need help with your taxes and figuring out if you are due a refund, never hesitate to tell us of your concerns.
We will gladly offer our advice, but most of all, we will listen. Our job is to make your taxes just another yearly reminder for you, without all of the work and confusion that comes with them.