Got a professional membership? Get better tax code

hazbow

Sorry if this has been posted before.

If you pay for a professional membership, then you should notify your tax office and they will give you a better tax code.
Basically if the membership costs you £100 a year, your tax code is adjusted so you can earn an extra £100 a year before being taxed. Effectively making your membership free.

I'm a member of the CIPD which I pay an annual membership for. It's worked out very well for me cos the amount I save on tax comes out slightly more than the cost of my membership

nick74

hazbow wrote: »

Basically if the membership costs you £100 a year, your tax code is adjusted so you can earn an extra £100 a year before being taxed. Effectively making your membership free.

That would only make your membership 'free' if you were paying tax at 100% though! If you pay tax at 20% it saves you £20, at 40% it saves you £40.

It's not possible for the amount you save in tax on the membership fee to be more than the membership fee itself.

Tiggergirl

The other thing to point out is that if your employer reimburses you for your subscription, you cannot claim the tax relief on the subs.

As nick74 says, you don't end up getting your membership free. They are just giving you the tax back on that £100 that you have paid out.

For example, your gross income on that £100 would have been £125 (£125 less 20% tax = £100 net), so you end up getting the £25 tax back.

pandora205

Just to mention you can claim tax back on this too. I wasn't aware that this was an allowance so contacted Inland Revenue. I am now able to claim back (or at least have my tax code amended) for the last 6 years. My professional association had to give me receipts for back years which I had to submit.

hazbow

well i dont know how it works but since notifying my employer of the new tax code after is was changed cos of the membership my pay improved by about £7 a month.

maybe someone cocked up some where. so i'll keep quiet hehe

anyway, even if it is as you say, your still better off each month even if it is only 1 or 2 pound. Could almost get you a pint!

nick74

Tiggergirl wrote: »

For example, your gross income on that £100 would have been £125 (£125 less 20% tax = £100 net), so you end up getting the £25 tax back.

I'm not sure why you're grossing it up to £125 though? The £100 expense is deducted from the gross before the tax is calculated, rather than the net, so for a basic rate taxpayer it would reduce the total tax bill by £20 surely?

Tiggergirl

nick74 wrote: »

I'm not sure why you're grossing it up to £125 though? The £100 expense is deducted from the gross before the tax is calculated, rather than the net, so for a basic rate taxpayer it would reduce the total tax bill by £20 surely?

For some reason I was convinced the way I calculated it was correct, but on checking how my subs were dealt with, you are correct.

It's odd that it's calculated that way, since you are effectively paying subs out of income that has already been taxed. I would have thought that you should get the tax paid on that income back, but not so it seems.

nick74

I think what sometimes causes confusion here is the comparision between how the tax relief is dealt with on private pension contributions, and how it is dealt with on other employees expenses such as subscriptions.

With a private pension the contributions can be paid net of tax, then the pension company reclaims the tax for you. So pay £80 net into a pension and it is grossed up to £100 by the pension company.

There is not, as far as I know, any equivalent way of paying professional subscriptions net of tax, so when you pay a sub of £100, you are paying £100 gross, not £100 net. It is up to you to reclaim the tax, (the professional body, unlike a pension provider, cannot do it for you) which makes the net cost of the subscription £80.

The tax relief on both examples given above is the same amount, it's just paid to you in different ways.

Hope that makes sense!

trevormax

It should also be noted that to qualify for this expense the professional subscription has to apply to your particular job, i.e. a medical doctor being a member of a medical body. You wont qualify if say you are a maths teacher who has decided to become a member of a medical body for some reason.

ohmsoft

Really silly question but here goes!

I've known I was entitled to relief on my PFS fees for a while but thought I would have to go through self assessment rather than code change and that wouldnt be worth the 20 odd quid...

When you say notify the tax office - do i litterally just send a letter to HMRC quoting my NI number and fees or do I need to fill out a form?

newdawnfades

ohmsoft wrote: »

Really silly question but here goes!

I've known I was entitled to relief on my PFS fees for a while but thought I would have to go through self assessment rather than code change and that wouldnt be worth the 20 odd quid...

When you say notify the tax office - do i litterally just send a letter to HMRC quoting my NI number and fees or do I need to fill out a form?

I have a similar query. I have requested (and received) a letter from my professional association detailing my subscription fees for the last 7 years. Do I just call the tax office? or is it better to write them a letter? If it is a letter, are there any templates out there to use? Thanks in advance.