Many tax-paying workers of the UK are under the impression that the Pay As You Earn (PAYE) systems simplicity and ease of use for filing of taxes has created a system where one does not need to worry about what they owe the government, as they are assuredly in the correct tax bracket. This is not necessarily true especially for the self-employed and business owners of the world, but even for the standard 9-5 worker. A non-insignificant amount of workers are simply unaware of rebates available to them on a yearly basis based on their expenditures throughout the work year. Accurate Accountancy and a basic understanding of UK tax laws can help tremendously in understanding where you stand in the HMRC.
The PAYE system started out by necessity during WWII wherein a huge amount of new tax payers, nearly 2,000,000, who had never had to pay taxes before became part of the economy. Churchill saw a problem approaching as the government did not have the resources to expend to deal with properly ensuring proper taxation using the old systems, but at the same time required the revenue to continue the fight against Germany. The government needed a system that was not only efficient, but also simple enough that the new populous could use it nearly immediately without issue. In 1941 Churchill’s chancellor, Sir Kingsley Wood, came up with the PAYE system with these two main goals in mind. The three branches of government your taxes go to are the central government (HMRC), the devolved national governments, and the local government. In the old days it was the responsibility solely of the tax payer to ensure proper taxation went to each of these branches leading to many complexities along the way. Now with the new PAYE system the citizen would be classified into tax brackets and codes and pay tax according to their level in the system. Furthermore the majority of taxation was redirected to the HMRC with them supplying grants and funds to the lower levels and the lower levels of government making their own income with other taxations and parking fees. The PAYE system has been a great success in these ways, allowing taxes to be paid without much work at all from the citizen. We are granted a tax code, and the money comes from our pay checks yearly based on our income levels and code. However, the issue that lies within here is that there are many cases for workers that are not within the strict normalcy of a standard tax code or have a situation that the HMRC is not fully aware of may end up over paying on their taxes without proper knowledge of the tax system.
P87 Form for Self Assessment and Uniform Tax Refund
An example of this lies in the oft overlooked P87 form which encompasses the Approved Mileage Allowance Payment (AMAP) relief, the HMRC Tax Rebate for Uniforms, as well as many other tax refunds that are underutilized due to a lack of knowledge by the populace. Many are under the impression that tax refunds are now a redundant in the age of the PAYE system, though this is accurate in many senses it is not entirely true. For instance the Uniform Tax Rebate exists for any uniformed employee at a flat rate to be able to claim expenses for the maintenance of their work attire. This attire can range from an Airline Employee to an EMT to a retail store employee, meaning this is a very broad category for any and all employees to take advantage of if they have to maintain their own work uniforms. This particular relief can be claimed for up to the past 4 years as long as you have been in unformed work that entire time, but after claiming the first time your tax code should reflect this cost and you will be tax lowered in future years. There are many services that can help to claim uniform tax rebate such as simpletaxrebate.co.uk, these services contact HMRC and ensure that the correct codes for uniform tax rebate are applied.
Another area of note for tax rebates is the previously mentioned AMAP relief, which provides monetary compensation to those who must travel and maintain their own vehicles during business hours. It is based around the simple idea that the expenses incurred upon the employee due to general wear and tear of a vehicle should be re-compensated to the worker at the end of the tax year. The amount of relief received is dependent on the mileage driven, one rate for 10,000 miles and another rate for every mile after 10,000. An accurate record keeping GPS software or diligent notes will be needed to ensure accuracy while filling in this form.
Accountancy firms and software can be incredibly useful to the savvy tax-paying worker and the initial cost of such professional help can easily be accrued back by accurate taxation from the HMRC. The HMRC website even recommends a slew of such accounting tools and should be looked into, especially for the self-employed and business owners. The PAYE system is simple enough for the 9-5ers of the world, but those who are working outside of the standard employment processes need to be extra diligent in their accounting record keeping. If you are selling goods and services on your own, trading, or have started a limited company be sure to make note of all business income and outgoings as both of these are just as important for proper taxation.
Being inaccurate in your accounting has two main possible consequences. The first is the most common, and one that many are guilty of without being aware of. That of underutilization of proper tax refunds, meaning they pay more money to the government than they should be. The other is much more dangerous to one’s livelihood, and that is accidentally filing fraudulently. This occurs as a result of inaccurate record keeping or ignorance while filing but can cause large fees and interest to be incurred on the tax payer until the cost of the difference between what was paid and what the government is owed is resolved. Accountancy firms and software specializing in general taxations and P87 forms can be a huge boon in tax process and can help reveal many under-utilized refunds for your unique situation.