Tax relief on PAYE expenses could land you a minor windfall
Under Revenue rules you are allowed to claim for the past four years
Many people are entitled to claim tax relief on work related expenses, be they uniforms or tools, while others can claim a certain cash amount towards expenses when travelling for work – whether they actually spend the full amount or not
If you work in the PAYE sector, it’s likely that the tax implications of expenses are not something you will have given much consideration to. Claiming tax relief on expenses is for the self-employed, right?
However, you may be missing out by more than you realise by failing to claim certain tax reliefs which can help boost your after-tax income.
After all, many people are entitled to claim tax relief on work related expenses, be they uniforms or tools, while others can claim a certain cash amount towards expenses when travelling for work – whether they actually spend the full amount or not. So what do you need to know?
The first expense PAYE workers need to be aware of are “flat-rate” expenses. Available to those in a broad range of professions and trades, from teachers, to bricklayers, to hospital doctors, flat-rate expenses are one of the most common reliefs that are never claimed for. In 2013 for example, (the most recent year for which figures are available) some 571,000 people successfully claimed these expenses, worth a total of €71 million, according to the Revenue Commissioners. But it’s possible that many more people failed to do so.
Introduced to cover the cost of certain expenses employees incur in the course of their profession or trade, the relief cover expenses such as acquiring tools, equipment for a classroom, or buying or laundering uniforms, that PAYE employees would otherwise not be reimbursed for.
The relief can be sizeable: professional musicians for example are entitled to annual relief of €2,476, while hospital consultants are eligible to claim relief of €695 a year.
And the good news is that the scope of the reliefs hasn’t declined, even in the age of austerity. For example, in 2009 a vet could avail of €337 in tax relief – this has since risen to €621 for 2014, while the rate of €518 available to teachers has not changed since 2009.
How do they work?
The first thing to note is that the expenses work as a relief against your taxable income, which is not the same thing as a credit.
For example, if a teacher was to get a tax credit of €518 a year, they would pay €518 less in tax that year. With a relief however, the benefit to you is dependent on the rate of tax you pay.
Take a teacher on the higher rate of tax (40 per cent), earning more than €32,800 a year. Given a relief of €518, they will pay €207 less in tax a year.
Over four years, this would come to more than €800 (remember relief would have been at the higher 41 per cent rate for the years 2014-2010).
On the other hand, if the teacher is on the lower rate of tax (20 per cent), their saving would be just €103 a year.
And a further quirk of a tax relief is that if your income isn’t high enough to pay tax, the relief won’t be any good to you.
If, for example, you earn less than €16,500 a year, you will only be liable for the universal social charge, and not income tax. This means that, regardless of how big the relief might be, it won’t be any good to you.
How to claim
If you have never claimed relief for a flat-rate expense, you could be in line for a little windfall by doing so now.
Under Revenue rules, you are allowed claim back overpaid taxes, as long as you do so within four years. This means that if you make a claim now, you will be eligible to claim back the relief for the years 2010-2014. If you leave it until January, you’ll miss out on 2010, so it makes sense to do it now.
You don’t need receipts to claim the relief, and can do it quickly and easily through the Revenue’s new “My Account” service (https://www.ros.ie/myaccount-web/home.html). This new service allows you to do a host of things including managing your tax credits, declaring income, paying your property tax and claiming flat-rate expenses.
Don’t forget your travel expenses
PAYE employees, as well as company directors, can also benefit from tax-free expenses or subsistence rates, up to a certain limit unvouched, when they travel for work, either at home or abroad.
When travelling away for work, employees are allowed to claim for expenses in one of two ways. You can provide receipts: ie your hotel costs €180 and you get €180 back when you provide the receipt. Alternatively, you can make your own arrangements, pay for everything yourself, and claim the maximum subsistence rates.
If you claimed the per diem and also wish to claim additional expenses, this additional amount would be taxable unless you have kept your receipts.
In years gone by, employees would often stand to benefit financially when working away, as the overnight subsistence rate often covered not just their expenses, but left them a certain additional amount to save or to use for presents in the airport or train station.
However, back in 2009, then minister for finance Brian Lenihan slashed the maximum rates of subsistence expenses by 25 per cent. As a result, many employees or companies paid expenses involved in travelling – transport, hotel, meals etc – in full based on receipts received.
Adopting this approach means that while the employee should not be out of pocket for their working trip, there is no financial benefit either. And, it puts the onus on the employee to ensure they keep receipts for smaller expenses, such as taxi and bus fares, which can add up.
Will increased rates make much of a difference?
In June, the Revenue increased the maximum rates of subsistence expenses employees and directors can claim tax-free for time spent working away from their normal place of work.
The move means that from June 30th 2015, employees will be able to claim a daily allowance of €14.01, up from €13.71 previously, for between five and 10 hours spent working away from their normal base.
Overnight rates have also increased, up to €125 for the normal rate for example, from €107.69 to €108.99.
But, with hotel prices, particularly in Dublin, rocketing, you certainly won’t make a profit on the new rates, accountant Thomas McGibney says.
“I suppose part of the dilemma is that accommodation rates and general costs such as meals are going back up to Celtic Tiger rates; but subsistence rates haven’t reflected this,” he says.
The maximum day rate of €33.61 is 13 per cent lower than the corresponding rate of €38.57 that applied 10 years ago in 2005.
Also, Revenue made no move to increase allowable motor expenses. These were also cut by 25 per cent in March 2009, when a litre of diesel cost less than €1. Today, despite the recent collapse in global oil prices, you would do well to get a litre of diesel for less than €1.15.
Remember also, if you travel abroad, that different subsistence rates apply – and with these you may be better off opting for the overnight subsistence rate, rather than keeping all your receipts.
In Paris for example, average hotel rates are €144 a night, according to a survey from online hotel reservations service HRS. But you can get a tax-free subsistence rate of €292 a night in the city – potentially enough for a hotel, dinner, plus a sneaky trip to Galeries Lafeyette or a game in Stade de France.
And compare how a business traveller from Cork going first to Newry and then to Dublin will fare. In Newry, they can claim €147 a night, thanks to the strength of sterling, while in Dublin, it’s just €125.
It does depend on the city however. In London, you will get just €230 a night and, with average hotel rates of about €173 a night, this won’t get you very far when you include the cost of a meal. Similarly, New York has an average price of €213 a night for a hotel room, but a subsistence rate of just €251.