Relocation expenses

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Introduction -UK relocation allowance 

Relocation expenses may be an expense that you incur if you move location for work reasons. When you do relocate, are your relocation expenses tax-deductible? In the process of moving office, you will undoubtedly incur various office relocation costs in relation to your move. Therefore, when we delve into whether such costs are tax-free, there are some eligible relocation expenses for which you can claim. As a result, if your claims meet the qualifying conditions, you can indeed claim tax relief as part of the relocation allowance (UK).

At some stage, 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 as a relocation allowance (UK) regarding your house move costs? Furthermore, when you make a claim, which expenses will be allowable business expenses that will save your company Corporation Tax?

Initial thoughts -relocation expenses (UK)

Now, let us consider are relocation expenses tax-deductible? When you incur office relocation costs as part of your move, are these taxable? We will examine these considerations and learn which costs you can claim when you relocate while running your own company.

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Relocation costs tax-deductible -HM Revenue & Customs (HMRC) guidance 

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

There are four conditions to meet for the official relocation allowance (HMRC). Therefore, if you meet only three or fewer, you will not qualify. The conditions to meet for the relocation costs tax-free allowance 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 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 a HMRC relocation expenses time limit in which you have to claim the allowance. This means there is a relocation allowance time limit to meert. Furthermore, you do need to incur the expenses you claim for, and the employer must provide these before the end of the following tax year in which the move arose. If you relocate in March 2022, the employer must pay the expenses by 5 April 2023.

Qualifying relocation expenses -further considerations

When you change your new primary residence, what is a reasonable distance for relocation? If we take a closer look, the new residence 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 office relocation costs (HMRC) 

Eligible expenses and `qualifying’ costs 

HMRC’s advice state that employee relocation costs up to a value of £8,000 are exempt from reporting and paying tax and National Insurance. These are also called ‘qualifying’ costs. Notably, there is an official relocation expenses list which shows what types of costs HMRC will allow for such qualifying relocation expenses.

HMRC’s list of eligible relocation expenses 

There is a HMRC relocation expenses list available, which shows the qualifying costs and benefits which HMRC will allow when you relocate for work reasons:

  • The costs when you buy or sell a home.
  • Moving expenses, including removal expenses.
  • Buy certain things for a new home.
  • Bridging loans.

Please note, as an employer, any expenses that you can claim are for the actual costs for the employee’s relocation, rather than a fixed £8,000 office relocation costs 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 and estate agent costs and fees related to the sale of your former residence.
  • Estate agent and legal fees and fees related to the purchase of your new residence.
  • Bridging loans.

Bridging loans 

For a bridging loan to count as a qualifying cost:

  • Your employee (or family members) 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 for the HMRC relocation allowance are:

  • Mortgage or housing subsidies you incur when moving 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 expenses through your company

If your office relocation costs exceed £8,000, you can claim 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 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 HMRC relocation expenses when you move for work reasons. If you relocate for work reasons, please make sure that you follow these when you work out what you can claim.

If you are a contractor considering buying a property generally, or when you relocate for the above reasons, please read our guide on contractor mortgages.

Link to Contractor Advice UK group on

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Published On: August 1st, 2022 / Categories: Expenses, Expenses Guides, Member Only Articles (Technical!) /

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