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Personal Finance

Here's why now is the time to apply for the flat-rate expense allowance

Here's why now is the time to apply for the flat-rate expense allowance
Rob Flynn

Rob Flynn

Staff Writer

600,000 workers are currently eligible to apply for the flat-rate expense allowance in Ireland.

If there’s one thing people could change about working it would probably have something to do with lowering the amount of tax they pay - wouldn’t that be nice?

And while we pay our fair share of income tax in Ireland, that doesn’t mean there are no ways to avail of tax relief and pay a little less. In fact, there are plenty. Take tax allowances, for example.

A tax allowance helps to lower the amount of tax you pay, and the value of the allowance will depend on what tax band you fall into.

One such tax allowance that people might be familiar with, and which has been in the news recently, is the flat-rate expense allowance.

In this blog we’ll discuss flat-rate expenses in more detail, why they've been in the news, and why you should consider applying for the tax relief now.

What is the allowance?

Flat-rate expenses are a form of tax allowance that can be claimed by workers in certain industries to help towards the costs associated with their job. Costs can include anything from tools to uniforms and even stationery, according to Revenue.

There is a set amount allocated to each occupation and everyone can claim the same amount, regardless of how much they earn - hence the name 'flat rate'.

Everyone from archaeologists to veterinary nurses are eligible for the allowance. For example, occupational therapists in Ireland are able to claim up to €217 in cases where they are obliged to supply and launder their own uniforms, while carpenters and joiners can claim a tax allowance of €220 for the cost of their equipment and tools.

See the full list of professions and the relief available here.

What’s been happening in the news?

Last year, Revenue carried out a comprehensive review into flat-rate expenses and concluded that some of the existing allowances were no longer valid and there were fears Revenue could end up abolishing some, if not all of them, resulting in a nasty pay shock for workers.

However, following an outcry, a decision was made to postpone any changes until this year and then earlier this month, Revenue announced that it was going to defer any changes again until at least 2021, due to the adverse effects that the pandemic has had on wages and employment, meaning more people now have an opportunity to shear some money off their 2020 tax bill.

The review from Revenue did however suggest that a number of aspects of its own review needed further consideration, namely in the areas of tax policy and legislation. For this reason Revenue postponed the implementation of its review findings until such a time that the Tax Strategy Group has had time to conduct a full policy review of its own. 

While there’s seemingly some politics at play here when it comes to the decision to implement yet another deferral, it still spells good news for the 600,000 or so workers entitled to one of the allowances and effectively means they’ll be spared a tax increase, for another while at least.

If you’re eligible, we would certainly advise you to claim for the relief where at all possible, especially before any changes are implemented in the future. Every little helps, to borrow a phrase.

And remember you can claim for any allowance going back up to four years. 

So, if you’re looking for some (more) tax relief...

How it works...

A tax allowance is not the same as a tax credit and will be treated differently.

A tax credit works by reducing the amount of tax that you pay by the size of the tax credit. So a €500 tax credit would reduce your yearly tax liability by €500. A €1,000 tax credit means you pay €1,000 less in tax and so on. 

The value of a tax allowance, or in this case flat-rate expenses, is based on what rate of tax you pay, because the allowance is taken from your income before any tax is deducted.

So, the value of the tax allowance you receive will depend on whether you’re paying the standard 20% rate of tax or if you’re being taxed at the higher 40% rate. Naturally this will depend on how much you earn per annum.

As an example:

Person A:

Flat-rate expense allowance: €350

Tax payable @ 20%

What this means:

Taxable income is reduced by €350

Tax is in turn reduced by €70, which is €350 x 20%

Person B:

Flat-rate expense allowance: €350

Tax payable @ 40%

What this means:

Taxable income is still reduced by €350

Tax is in turn reduced by €140, which is €350 x 40%

How to claim

Claiming for flat rate expenses is very simple.

All you have to do to claim is complete an Income Tax return, or Form 12. You can find this form in PAYE Services in the myAccount section on Revenue’s website. 

The following steps will help get you there.

  1. Sign into myAccount on revenue.ie
  2. Click on ‘Review your tax’ in PAYE Services
  3. Select the Income Tax return for the relevant tax year
  4. In the ‘Tax Credits & Reliefs’ page select ‘Flat rate expenses’ and add it as a tax credit 

If you feel you pay way too much tax and would like to find out how to pay less, take a look at our article on 10 ways to pay less tax - you won't regret it! 

Want to know more?

If you have any questions about flat rates expenses, tax allowances, or any other tax-related issues feel free to get in contact by asking us a question in the comments below. We’d be happy to help!

You can also get in contact with us over on social media. We’re on FacebookTwitter, and Instagram.

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