What is Income Tax relief and how does it work?

The amount of Income Tax you pay will likely have a significant impact on your overall financial position, so it is important to understand what reliefs you might be able to benefit from.

What is Income Tax?

Income Tax is paid on income such as earnings from employment, profits if you are self-employed and state benefits.

Other things included may be support payments made to you through your business, pensions, benefits from your job or income from a trust.

Income Tax is not paid on all income, for example, dividends are subject to dividend tax and proceeds of the sale of certain assets are subject to Capital Gains Tax.

What is Income Tax relief?

Income Tax relief applies when you pay less tax to account for the money you’ve spent on things such as business expenses if you are self-employed.

You can get tax back or get it repaid in another way such as into a pension.

You should keep in mind that some types of tax relief are automatic but others you have to claim.

How do you know if you are eligible for tax relief?

If you are wondering what tax relief applies to, this is what is included:

  • Pension contributions
  • Charity donations
  • Maintenance payments
  • Time spent working on a ship outside the UK

In terms of businesses, it applies to:

  • Self-employed businesses (including sole traders or partners in partnerships)
  • If you are employed but use your own money for things related to your job such as travel and equipment

Some examples of allowable business expenses include costs which are solely for business use. Anything purchased must be necessary for the business, whether this be a new employee or a piece of equipment.

If you need advice on related matters, contact us today.

Posted in Blog.