Introduction -the relocation allowance (UK)
As a UK limited company contractor, there may come a time when you need to move location for work reasons and as a result, you may incur relocation expenses. What’s more, when you do relocate while contracting and incur costs of moving office, are your relocation expenses tax-deductible? In the process of your office move, you will no doubt incur various office relocation costs in respect of this. Basically, when we delve into if such costs are tax-free, there are some official eligible relocation expenses which are set by HM Revenue & Customs (HMRC). Therefore, what is included in relocation expenses (UK)? Basically, you can claim for these official HMRC relocation expenses, if your claims meet certain qualifying conditions. Indeed, when this is the case, you will receive tax relief as part of the official relocation allowance (UK).
At some stage, when you run your own contractor limited company, you may need to move house to start a new contract role. Indeed, there could be a time when your new UK contracting role is many miles away from where you live at the current time. You may have to travel long distances or even go from north to south or vice versa. What’s more, travelling to the site at the start of week, staying there and travelling back at the end of the week may not be viable. As a result, you may need to relocate closer to your new worksite.
HMRC relocation expenses (UK)
What can you claim as a UK relocation allowance with regard your house moving costs? Indeed, we will look at what you can claim and when can you write off relocation expenses. Furthermore, when you make a claim, what type of expenses will be allowable business expenses which will save your company Corporation Tax?
Now, when you run your own UK company, let’s now look at when are your relocation expenses tax-deductible. We will think about when you incur office relocation costs as part of your move, are these taxable? Next, we will look into the official rules in more depth, and learn which costs you can claim when you relocate.
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HMRC’s official guidance will allow limited company contractors and businesses to claim an annual tax-free relocation allowance (UK). Basically, the allowance is currently set at £8K per annum for each employee. However, this moving tax exemption must be for a current employee of your business. Further to this, the exemption is tax-deductible if it follows the current qualifying criteria.
When are your relocation costs tax-deductible?
There are four conditions for you to meet as part of the official relocation allowance (HMRC). Therefore, if you meet only three or fewer of these, you will not qualify for the allowance. Therefore, the conditions which you should meet in relation of the relocation costs tax-free allowance are shown below:
You land a new job
As part of this, you change your job and place of employment. However, your new place of work must be significantly further away from your current place of residence to make a move necessary.
A change in your official duties
As a result, you change your duties in terms of your employment and you move to another department or branch. In turn, this means you must travel a greater distance to your place of work.
A change of your work location
Therefore, your location changes where you carry out your official duties. As a result, you must travel a greater distance to your place of work.
There is a HMRC relocation expenses time limit in which you have to claim the UK allowance. This means there is an official relocation allowance (UK) time limit to meet. What’s more, you need to actually incur the expenses and the employer must provide these before the end of the following tax year in which the move arose. To sum up, if you relocate in March 2023, the employer must pay you the expenses by 5 April 2024.
What else to consider?
Employment law -reasonable travelling distance (UK)
When you change your new primary place of residence, what is a reasonable distance for relocation purposes? If we take a closer look, the new residence should be a `reasonable’ daily travel distance from your new work location. What’s more, your previous residence should not be a `reasonable’ daily travel distance from your new work location.
Common sense approach
It is key to note, the tax office does not define what a `reasonable’ travel distance actually is. Indeed, the rules do state that you should take a common-sense approach. Therefore, this is down to your circumstances to some extent. If your journey is 40 miles each way, this may be regarded as a `reasonable’ travel distance.
Official types of office relocation costs -HMRC manual
Eligible relocation expenses and the `qualifying’ costs
HMRC’s advice state that employee relocation costs up to a value of £8K per annum are exempt from tax. Basically, these are also known as ‘qualifying’ costs. However, there is also an official relocation expenses list available. To sum up, this shows what types of costs HMRC will allow for such qualifying relocation expenses.
Qualifying relocation expenses (HMRC manual)
HMRC’s list of eligible relocation expenses include a number of areas where you can make a claim. Therefore, in this official HMRC relocation expenses list it shows the types of costs which you can claim. Indeed, this shows the types of qualifying costs and benefits which HMRC will allow you to claim when you relocate for work reasons:
- The costs when you buy or sell a home.
- Your moving expenses. Certainly, this includes any removal expenses.
- Buy certain items for a new home.
- Bridging loans.
As an employer, any expenses which you can claim are for the actual costs for the employee’s relocation. Therefore, rather than a fixed £8K office relocation cost allowance, the relocation expenses (HMRC) allowance include:
- Removal costs.
- Travel and subsistence costs whilst the employee finds their new home. Indeed, the travel costs could include living accommodation. Further to this, it could be stays at a temporary accommodation near the new work site until the employee finds a permanent residence.
- Domestic goods for the new property.
- Legal and estate agent costs and fees which relate to the sale of your former residence.
- Estate agent and legal fees and fees which relate to the purchase of your new residence.
- Bridging loans.
There are certain conditions for a bridging loan to count as an official qualifying cost, under HMRC guidelines. These conditions are as follows:
- Your employee (or family members) will need to sell their old home and buy a new one.
- It is required to bridge the gap between buying the new house and getting the money from the sale of their previous home.
- You need to use this only to buy the new house or pay off loans that relate to the old home.
- The loan cannot be for more than the market value of the old home at the time when you buy the new home.
There are certain types of expenses which do not qualify for the official HMRC relocation allowance (UK). These are:
- Mortgage or housing subsidies you incur when you move to a higher-cost area.
- Mortgage interest payments on your existing home.
- Compensation for financial losses on the sale of your home.
- Mail redirection costs or other household bills.
- Council Tax bills.
How to claim for your relocation expenses through your UK contractor company
If your office relocation costs exceed the £8K annual allowance, you can claim the £8K tax-fee. Therefore, if you claim for more than this, you will only pay tax on the excess above £8K. As a result, you will have to report the excess on form P11D. Basically, this form reports taxable benefits and expenses to HMRC. Therefore, it will include any excess relocation cost claims. In turn, these will be subject to Class 1A NIC for your business.
When you claim for relocation expenses, please make sure you obtain the receipts for any of your costs. Indeed, these are required in case HMRC ask to see these at a later date.
It can be a big task to take on when you move house for work reasons. Therefore, if there comes a time when you do need to relocate as part of your UK contracting career, you will move all of your personal possessions. In some cases, the journey may also be a long distance or sometimes even across the width or breadth of the country.
Finally, we show above what the current rules are around HMRC relocation expenses, when you move for work reasons. If you do move house for work reasons, please make sure that you follow these rules when you work out what you can claim. If you are a contractor who is considering buying a property or you are relocating for the reasons in this article, please read our guide on UK contractor mortgages.
Link to Contractor Advice UK group on