Income Tax: how does it work?

You can always file one if you want to.

Your employer sends information to the tax man about how much you earn, and deducts what he thinks will be the right amount of tax.

Not any more.

Interest from savings normally already has tax taken off at source. Only if you're a higher-rate taxpayer would you need to pay extra tax on your interest.

Some National Savings can be a problem here.

Rob Graham

Pay As You Earn (PAYE) is the system -

ntryGB

Daytona

Bitstring , from the wonderful person Rob graham said

And some Gilts purchased via POs in days gone by ..

Compared to other countries the UK income tax system is a blunt instrument - it's fairly simple and for most employees who earn under about 40,000 it's all taken care of automatically. It's also strictly based on individual circumstances, there is *no* allowance whatsoever for being married or having kids.

Because it's obviously nonsense to expect people with 4 kids to be able to afford the same tax as a single person on the same income, there is a separate system of "tax credits" which are payable to most people with children and some people without children on a low income. Despite the name, this has not linked with the income tax system and although it's run by the same govt dept, HMRC, it is a completely separate system which you need to make a separate claim for.

Employment income is taxed through PAYE as others have said and savings income is taxed by the bank at the basic rate. So most people don't need to do tax returns.

Some work expenses are tax deductible, but most of these would usually be paid by the employer direct to you as expenses without being taxed, assuming the employer has a "dispensation" which basically means his expenses get audited by HMRC to prove he's not paying taxable payments through expenses. If there is anything tax deductible which your employer isn't paying for, they will usually tell you about it. Travel to your normal place of work is *not* tax deductible.

Thanks for the link, I'm working through it. As you say, should have all I need.

What it seems to be saying is that, regarding income, I need to file a return only if my non-salary income takes me into a different tax band (ie above £36,000 or, below £2320). Otherwise I don't bother.

But re: expenses, I've been told that the the criteria is "wholly, exclusively and necessarily" (or something like that), which means that nothing I spend qualifies because it's not "necessarily". For example, I go to a conference. I apply for funding to go (I'm an academic) but don't get it. I go anyway, because if I don't go to conferences I might as well kiss my career good-bye. It's wholly and exclusively part of my job, but since I wouldn't lose my job if I didn't go, it's not necessary and so not an expense. Same with computer software (I can always use an pencil and paper - but I can't claim for pencil and paper, because I should really just memorise the data), books and journal subscriptions (no-one's forcing me to read them, and if I really want to read them I can go to a library), membership of professional bodies (not necessary for the job itself), etc.

Just some of the things that are tax-deductible in Australia, my last residence, but appear not to be here.

Is this correct, or have I been misinformed?

You need to file a tax return if you are requested to file one. You also have to tell HMRC of any new sources of income.

You are right about the expenses.

If these tools and expenses are necessary why doesn't your employer provide them?

Yes, or if you have other income which has not had tax deducted at source, for example if you write anything and the publisher pays you a fee.

That's correct for employment income. If you were self-employed, the "necessarily" part would be omitted. Bummer.

It's not a simple as that. I suspect you are imposing a stricter interpretation on "necessary" than is, er, necessary.

This is a difficult one. It's not even certain that going to a conference is part of your job at all, so in this case even the "wholly and exclusively" tests are likely not satisfied, and so there isn't even any point in wondering about the "necessarily" test.

It's important also to distinguish between your actual job on the one hand, and your career on the other. Your career will span several jobs, and any expense incurred mainly for the purpose of furthering your career prospects is really of more benefit to you long-term than it is to your current short-term duties.

If what you expect to learn at the conference is directly relevant to the research you are doing now, or if you are even contributing even is a small way to the conference, the expense may well qualify. But if your attendance is more for "networking" to benefit your future employability, it probably will not.

This is where you're going too far. Membership of professional bodies generally *is* an allowable expense, including journal subscriptions. Most people don't claim for pencil and paper because it's too trivial (but I dare say most academics don't actually buy their own pecils and paper, but have them supplied free of charge by their employers). Likewise computers are generally supplied for your use, and you're not expected to pay for them.

If there is a particular item of computer software which is necessary to help you carry out your duties more effectively or efficiently, I reckon it would generally pass the "necessarily" test. But what would count as evidence that it is indeed "necessary to help you ..."? It may well be the fact that the cost is reimbursed by your employer. If you buy it yourself, it may not be as necessary as all that. If it makes you more efficient, you will have more time to do something else. What will you do with that time? Go surfing? Then the expense would really have been incurred for your private benefit.

Not quite... see

Also, note that (a) once the travel qualifies for relief, then associated subsistence generally does, too; and (b) it is not "necessary" to use the cheapest method of transport.

I think you can reasonably take a different approach here. If your employer had reimbursed you, would you then be taxable on that reimbursement? From the academics I know, the answer is clearly "no". Hence, I cannot see why you cannot claim tax relief on the costs you incur in attending conferences.

If HMRC contested the claim, I would argue that CPD is an integral and essential part of your job (which academic isn't expected to be "up to date" on stuff?). I would also point out that you are being paid to attend - i.e. you are not taking the days out of your annual holiday entitlment.

I strongly recommend you go here...

... then click on EIM70695 and all the sub-sections which apply to whichever areas of academia are relevant to you.

That said, I'm very surprised the academic body which employs you doesn't reimburse you direct - but then it's a competitive world and they doubtless have limited funds. I think you should be fighting for your share, however. Mind you, you sound to be "new" and perhaps the hierarchy have stitched up the budget and you won't see the benefits for a couple of years or so.

See EIM70790 from the above link.

and some trade unions, too - e.g. school teachers & (IIRC) AUT etc...!

In summary, I think you're in a stronger position on most of the issues you raise than you might think... (albeit, you just get tax relief on the costs, not reimbursement in full).

Certainly worth asking colleagues what they claim.

HTH

Sorry Martin but you are not correct on this. An expense ha to be incurred Wholly, Exclusively and necessarily in the performance of the duties of the employment. Attendance at the conference may be of assistance in keeping the worker up to date but it is not "in the performance of the duties of the employment".

This means that, to be deductible, the expense must be incurred in actually carrying out the duties of the office. It is not sufficient that an expense is simply relevant to, or incurred in connection with, the duties of the office. In particular, no expense will be allowable which merely puts the office holder in a position to perform the duties of that office.

The expenditure must be such that any holder of the office would be necessarily obliged to incur it. The fact that an office holder is encouraged, expected or required to incur a particular expense is not conclusive evidence that it is 'necessarily' incurred. Also, the expense must stem from the requirements of the job itself, not from the personal circumstances of the office holder. Strictly, the 'necessity test' will be satisfied if (and only if) each and every person holding the office would have to incur the expenditure.

Thats because the membership of certain associations are permitted to be paid by the employer as they are on List 3.

You can find this at

This generally allows annual subscriptions to trade associations but not trade unions.

This is the other part of the guidance that I was looking for:-

EIM31990 - Travel expenses: general: overseas conferences, seminars and study tours: example A consultant neurologist attends the annual conference of the World Council of Neurology. The conference takes place in Geneva and takes 4 days. The conference consists of a series of meetings, lectures and seminars on medical matters. The neurologist's employer encourages her to attend and the conference is directly relevant to her work.

No deduction can be permitted for the cost of attending the conference. Attendance at the conference is not necessary expenditure, see EIM31950. Attendance at the conference is not one of the duties of her employment, see EIM31650.

In message , Simon writes

But is this not what is tax-deductible by the employer, ie it does not affect the employee directly? For attendance at conferences, seminars, training courses and other related jollies, the employer usually reimburses the employee all reasonable related expenses. What the taxman allows as tax deductible when the employer puts in his business tax returns is a different matter.

It's sounding like the answer is "no" to most of the above. Membership seems to be ok, but a couple of people I've asked say it's more trouble than it's worth.

Interesting the difference in philosophies in the two systems. In Australia you can claim pretty much anything work related, even if (I'm tempted to say especially if) it's linked to career rather than job. So, for example, if I'm a plumber and I go to night school to learn Japanese so I can get a better-paid job with a Japanese company, then (assuming I can justify that this is not just so I can competently order sushi on my next holiday) I can claim not only the cost of the courses, but the travel costs from work to school (but not to or from home), Japanese books I purchase, and so on.

So, back when I was a (part-time) student I could claim the bus fare from work to the university to attend classes as well as books, membership of societies, conferences, etc.

The Australian system seems to be geared towards encouraging people to move on (and up) and thus ultimately contribute to economic growth. I guess the British economy is strong enough without people trying to improve themselves :)

L.

Does this apply only if the employee chooses -off her own bat- to attend the conference? Surely in principle it could *become* part of her duties if the employer went further than to encourage her to attend, but in fact instructs her to attend, right?

To phrase it in terms the OP used, he gave the example of having applied unsuccessfully for funding to attend, and then opting to attend anyway by self-funding. Suppose the funding application had been successful. You would not then expect to tax this funding, would you? This is because that funding would be given specifically for, and conditional upon, actually attending it.

Here you would certainly not be able to claim the cost of Japanese classes and books against your existing job, because knowledge of Japanese is not a requirement of your existing job. If anything, you might expect to be able to set the costs against income actually arising from the new employment (but only if you in fact get that job

- speculative expenditure is not allowed), but under UK rules sadly even that is not allowed, because the new skills could be of use not only for your first Japanese plumbing job, but also for any other subsequent Japanese job. If you moved to Japan, knowledge of the language would also become useful to you socially, and so the exclusivity test would fail.

If, in order to qualify for being allowed to practice plumbing in Japan, you went on a crash course in Japanese plumbing regulations, this would still not be allowable because you could not identify

*which* Japanese plumbing employment the cost would have been necessary for. On the other hand, if you were going to work as a self-employed plumber in Japan, the "necessary" test does not need to be met, and you might therefore conceivably be able to set the costs against income from that self-employment.

However, this is unlikely to be of practical interest, since if you were working as a plumber in Japan, you would presumably be taxed according to Japanese, not British, rules.

For travel & subsistence, N but *not* W & E - see the link I posted previously.

Why do you say that?

I disagree with you. You've quoted the standard HMRC stuff, but you must then look at the requirements of the job.

Leo is an academic - and the job descriptions for Uni lecturers (which Leo may or may not be) all make the clear point that keeping abreast of latest thinking / developments (aka research, in some quarters) is central. That is a part of the job [most] academics are paid for, and effectively a "duty of the employment".

Also please note the points I made earlier (but you snipped) about other key arguments - especially whether any reimbursement to Leo would be taxable on him. Such reimbursements, IME, are not taxed. If you've got a contra example, I'd be interested to hear about it.

By your interpretation, a salesman would not get relief for reimbursement for the cost of travelling to a customer, since the travel merely puts him in the position of being able to sell. He could have done that on the phone.

Also consider that the conference (at which the academic is indeed working) is held at a temporary workplace. Hence travel is deductible.

ISTR that an Australian minister (of Finance?) once stated that it is the duty of an Australian tax payer only to pay the minimum that is due.

The underlying message was to claim everything that was claimable which I recall doing when I was there.

Here I've got in 'trouble' for using the wrong NI rate on benefits on telephone calls even though the difference in amounts over the year was not even 10.

Welcome to the land of jobsworths!

Don't you think you've confused duty with something else? I don't think the underlying message was as you state. He was pointing out the limits of duty.

Minimum? There's one amount due that is both the minimum and the maximum.

An expense can be an allowable deduction for the employer without being so for the employee. In this case, the company can claim the costs of sending an employee on such a seminar, but this is not allowable on the employee and so a taxable event has occured.