Relocation expenses

Introduction 

Relocation expenses may be an expense that you incur, if you need to move location for work reasons. Therefore, can you claim for these costs as tax free expenses? When we delve into this, there are some eligible HMRC relocation expenses and if your claims meet the qualifying conditions, you are indeed able to claim tax relief.

At some stage in time, while you work through your own business, you may need to move house to start a new contract role. There could be a time when your new contract role is many miles away from where you currently live. Therefore, what can you claim for in respect of your house move costs? Furthermore, when you make a claim, which expenses will be allowable business expenses which will save your company Corporation Tax.

Initial thoughts

Now, let’s consider what counts as qualifying relocation expenses and are these taxable. Therefore, we will take a look at these considerations and learn which costs you can claim for when you relocate whilst you are running your own company.

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HM Revenue & Customs (HMRC) guidance

HMRC’s advice allows your business to claim a relocation allowance of up to £8,000. This expense needs to be for an existing employee and is tax-deductible, if it follows the qualifying criteria.

There are four conditions to meet. Therefore, if you only meet only three or less, you will not qualify. These conditions are as follows:

  • New job. You change your job and place of employment. Your new place of work must be significantly far away from your current place of residence to make a move necessary.
  • Change of duties. You change your duties, and you move to another department or branch. In turn, this means that you must travel a greater distance to your place of work.
  • A change of location. The location changes where you carry out your duties. Therefore, you must travel a greater distance to your place of work.
  • There is only a certain time available to claim for the allowance. In turn, it means there is a time limit to meet. Furthermore, you do need to incur the expenses that you claim for, and the employer must provide these before the end of the next tax year in which the move arose. If you relocate in March 2022, the employer must pay the expenses by 5 April 2023.

Further considerations

When you change your new main residence, it should be a `reasonable’ daily travelling distance from your new work location.

In addition, your previous residence should not be a `reasonable’ daily travelling distance from your new work location.

Furthermore, the tax office does not define what is `reasonable.’ The legislation states 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, it may be a `reasonable’ travel distance.

Typical types of relocation costs

Eligible expenses and `qualifying’ costs

HMRC’s advice state that relocation costs up to £8,000 are exempt from reporting and paying tax and National Insurance. These are also called ‘qualifying’ costs and there is an official list available of HMRC relocation expenses.

HMRC’s list of eligible expenses for relocation

The following is a list of the qualifying expenses and benefits, which HMRC allow as relocation expenses:

  • the costs when you buy or sell a home
  • moving costs including removal expenses
  • buy certain things for a new home
  • bridging loans

Please note, as an employer, any expenses that you can claim for are for the actual expenses for the employee’s relocation, rather than a fixed £8,000 allowance and these include:

  • Removal costs
  • Travel and subsistence costs whilst the employee finds their new home. The travelling costs could include living accommodation. This could be staying at a temporary accommodation near the new work site until the employee finds a permanent residence.
  • Domestic goods for the new property
  • Legal fees and estate agent costs and fees that relate to the sale of your former residence
  • Estate agent and legal costs and fees that relate to the purchase of your new residence
  • Bridging Loans

Bridging loans

For a bridging loan to count as a qualifying cost:

  • your employee (or members of their family) needs 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

The types of expenses which do not qualify are:

  • Mortgage or housing subsidies that 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

Claiming for relocation costs through your company

If your costs when relocating exceed £8,000, then you can just claim for the £8,000. If you claim for more than this, you will only pay tax on the excess and this excess will need reporting on form P11D. This form reports expenses and benefits to HMRC and any taxable items and it would therefore include any excess relocation cost claims. In turn, these would be subject to Class 1A NIC.

Final thoughts

It can be a big task when you relocate for work reasons. When you do, you will need to move all of your possessions. The journey may also be a fair distance or sometimes even across the width or breadth of the country.

Finally, we show above what the current rules are around relocation costs when you move for work reasons. In the future, if you do relocate for work reasons, please make sure that you follow these, when you work out what you can claim.

If you are a contractor and are thinking of buying a property generally, or, when you relocate for the above reasons, please feel free to have a read of our guide on contractor mortgages.

Link to Contractor Advice UK group on

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Published On: March 17th, 2021 / Categories: Expenses, Expenses Guides, Member Only Articles (Technical!) /

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