Mechanics – Fast Guide To Claiming Tax Relief For Your Tools

This guide is designed to help employed mechanics who purchase their own work tools… Call it a "tool tax rebate", a "mechanic’s tax rebate" or a "tool tax rebate", it means pretty much the same – trying to claim back some money for the tools you purchased. While you may already be familiar with this process to a degree, here's some helpful Q&A to provide you with a better understanding of HMRC’s guidelines so you can avoid common pitfalls and disappointments…

We are not talking about self employed mechanics as the rules applicable to their status them come under the Self Assessment tax system, which is markedly different to the Pay As You Earn (PAYE) tax system reserved for employed staff. This guide is designed to help employed mechanics who purchase their own work tools…

What is tax relief?

According to financeglossary.com, tax relief is defined as an “amount that can be deducted from a person’s annual income in order to reduce the amount on which tax is paid”. For example, tool purchases worth £1,000 in a given tax year could be deducted from your taxable income of, say, £20,000 per annum, to reduce the taxable element to £19,000. But because you would already have paid tax on income worth £20,000 in that tax year (and not £19,000), you would be owed back from HMRC the tax you paid on £1,000. However, don’t misunderstand the facts – If you purchased £1,000 worth of tools in a particular tax year, this doesn’t mean you will be getting a tax rebate worth £1,000! Tax rebate is different from tax relief. Carrying on with the example, the tax relief is based on the purchase value of £1,000. The tax you would have paid on £1,000 depends on the income tax rate applicable to you. So, if you’re a 20% tax payer, you would be owed back a tax rebate of £200 from the taxman (£1,000 x 20%), not £1,000!

Can I get tax relief if I don’t pay tax?

No. Tax relief is only applicable if you paid tax in the first place, otherwise there isn’t any tax on which HMRC can apply relief. If you didn’t pay any tax, they can’t give you any tax back.

Are tax rebates from HMRC capped?

Yes. You cannot get a tax rebate that is superior in value to the amount of tax you paid. A tax rebate is simply the repayment of overpaid tax.

How far back can I claim tax relief for my tools?

You can claim back tax relief for the tools & light equipment you purchased in the last 4 tax years (not 6, as used to be the case!). From the date of this article, this means you can claim back tax for purchases from 6th April 2010, not before. This also implies that if you wait too long to claim tax relief you could lose your entitlement for the earliest years, so don’t delay!

Can I claim tax relief for purchases I made this year?

Not straight away. If you want to claim back money for your tools on purchases incurred during this current tax year, you’ll have to wait until the current tax year has ended, which is from 6th April 2015. This is because you can only submit a tool tax rebate claim for past (or lapsed) tax years.

For which purchases can I claim tax relief?

You can only claim tax relief for tools or purchases that are actually necessary for you to perform the duties pertaining to your job or occupation. Forget trying to pass off personal purchases as necessary work expenses – buying expensive equipment for your hobby and trying to include them with your other legitimate work expenses is a ‘no no’; it would constitute fraud and could land you in a whole heap of trouble if HMRC ever investigated your claim (this actually happens more than you think…).

My boss did reimburse me for some of my tools, can I still claim tax relief?

For your claim to be valid, you must have incurred the expenses yourself and not been reimbursed by your employer. Eliminate from your claim any purchases already refunded by your employer. If you don’t, it’s fraud.

Do I need to provide receipts to HMRC?

Amazingly, no, BUT.... As long as the actual purchase is traceable, you should be fine. It is unlikely that HMRC would request proof of purchase but it’s always best to keep all receipts in case they do (this could happen long after a claim had been settled). Ask from your tool supplier to print off a purchase history for the years you wish to claim tax relief.

How do I calculate my expenses?

Here’s a rough step-by-step guide, assuming your tax position with HMRC is standard (no debt owed to them; you paid the correct of income tax in each previous tax years)…

Step 1 - First, gather all your list of purchases from your supplier(s), including receipts from shops or eBay related to your tools. Automotive tool suppliers / manufacturers like Snap-on, Mac Tools, Draper, etc… should provide you with a purchase history if you ask your rep.

Step 2 - Tot up your expenses per tax year, working from 6th April until the 5th of April of the following year, and so on. Always count the total purchase price (including VAT). If you have a monthly payment plan in place with your tool supplier, only count the purchases that you already paid for.

Step 3 – Once you arrive to the total figure of purchases per tax year, multiply that figure by 20% if you’re a 20% tax payer (most employed mechanics are). For instance, say you purchased tools worth £2,000 in that tax year: £2,000 x 20% = £400. That’s the amount of money you should expect back from HMRC.

Can I apply for tax relief directly with HMRC?

Absolutely. You can do all the paperwork yourself (HMRC will only accept claims by post, not telephone or email). For expenses values under £2,500 per tax year, use a P87 form “Tax relief for expenses of employment”. You can download the form for free from HMRC’s website. Complete one P87 form per tax year and then return it to HMRC. The form includes a guide on how you should complete it. If the expense value for your tools is £2,500 or over in a particular tax year, you will need to use a self assessment tax return to claim tax relief. Tax return forms and guides are also freely available from HMRC’s website. A word of caution, though… If you’re not familiar with the tax system, tax returns or not so good with forms or calculations, the process may prove quite frustrating, as well as time-consuming. For that reason, many mechanics opt for using the paid services of a tax refund company or a tax agent. Another significant advantage is that tax agents are familiar with the HMRC’s rules and processes so they should ensure that your claim is submitted within the rules, legally and legitimately (mistakes with HMRC can prove costly in the long run!).

How can I select a reputable tax agent or a tax refund company?

Unbiased answer – Shop around as best you can before you commit to anyone! An online search is a good place to start. Don’t focus solely on the rates advertised. First look for a company that is well-established and reputable. Avoid firms that will want to charge you any money up front. The way most tax agents get paid nowadays is from deducting their fee directly from your refund, so you’re never physically out of pocket. Most will also offer a “no refund, no fee” guarantee. Stay away from firms making fanciful statements – If what they say sounds too good to be true, then it probably is…

In terms of rates, they do vary a great deal from one firm to the next. Some will charge up to 50% of the value of any tax rebate due to you, so shop clever! If a firm’s rates and charges are unclear, question them. If the answer is fuzzy, move on!