Relocation expenses & relocation allowance (uk)

Share This Guide, Choose Your Platform!

Introduction 

You may have to move house for work reasons when you run a UK limited contractor company. As a result, you may incur business relocation costs. What’s more, when you relocate while contracting and incur the costs of moving office, are your contractor relocation expenses tax-deductible? In the process of your company relocation (UK) and office move, you’ll no doubt incur various costs regarding this. Indeed, when considering whether such expenses are tax-free, HM Revenue & Customs (HMRC) has some official guidance to refer to. Therefore, when we consider HMRC relocation expenses, what is included per the tax office? In summary, you can claim for relocation under HMRC rules if your claims meet certain conditions. When this is the case, you’ll receive tax relief as part of the official relocation allowance (UK).

At some stage, when you run your own contractor limited company, you may have to move house to start a new contract role. Indeed, there could be a time when your new UK contracting role is many miles from where you live. You may travel long distances or go from north to south or vice versa. Therefore, when you work away, you may travel to the site at the start of the week, stay there, and travel back at the end of the week. These may be long journeys you’d prefer not to be taking. As a result, you may decide to relocate closer to your new work site. In this guide, we’ll find out when removal and relocation expenses are taxable (UK) and when they’ll save tax. Also, we’ll look at when the cost of this is taxable and in which scenarios you can claim for relocation.

Initial thoughts 

What are HMRC relocation expenses (UK)?

If you relocate for work reasons, what can you claim as a UK relocation allowance for employees regarding moving costs? When we research this, the cost of relocation for employees could be due to a job relocation because of your employer moving offices. On the other hand, it could be office relocation (UK) due to the employee moving to another branch or office of the company. In both cases, they’ll incur an office relocation cost as part of their move. However, what types of costs can one claim as a relocation tax deduction? Moreover, an employer may offer to pay for a company relocation package; however, will there be tax relief on this?

What we’ll look at in this guide

In this guide, we’ll look at those who run their own UK company and when their costs for relocating are tax-deductible. What’s more, we’ll research what you can claim for moving costs as a contractor and when you can write off relocation expenses. Furthermore, we’ll examine which office moving costs are allowable business expenses and save your company Corporation Tax. We’ll also investigate the official HMRC rules in more depth. As part of this, we’ll determine which costs are allowable when you move work location and the taxation of this when you exceed the annual limit.

If you enjoy technical reads like this, you may prefer an accountant knowledgeable in such areas. If your current accountant isn’t technically minded, please consider how you can change your accountant.

Official HMRC guidelines on eligible costs for relocation 

First thoughts

HMRC’s official guidance allows limited company contractors and businesses to claim an annual tax-free relocation allowance (UK). Indeed, the allowance is currently set at £8K per annum for each employee per tax year. What’s more, this moving tax exemption must be for an existing employee of your business. Further, the exemption for costs up to £8,000 per annum is tax-deductible if it meets the current qualifying criteria.

As an employee, your employer doesn’t have to offer any compensation for relocating. That’s unless it’s part of your contract of employment. Some employers may have a relocation expenses policy and offer financial help, including legal fees, moving costs, and temporary accommodation.

The four conditions -when are contractor relocation costs tax-deductible?

There are four conditions for you to meet as part of the official UK HMRC allowance for relocation. Moreover, you’ll not qualify for the allowance if you meet only three or fewer of these. The four conditions that you should meet regarding the UK relocation tax-free allowance are shown below:

Land a new job

As part of your move, you change your job and place of employment. What’s more, your new place of work must be a fair distance away from your current residence to make the move necessary. For example, you can’t claim for the costs if you move to another part of your town or city or a location nearby.

Change in work duties

You change your duties in terms of your employment and move to another department or branch of your employer. In turn, you relocate your office, which means you must travel a greater distance to get to your new place of work. The same applies above in that to claim the new location shouldn’t be nearby.

Change of work location

Your employer relocates; therefore, the office where you carry out your official duties changes too. As a result, you must travel a greater distance to your new place of work. Once again, the new location mustn’t be near the previous one.

Time limit

There’s a relocation expenses time limit within which you must meet in order to claim the UK allowance. This means there is a UK relocation exemption time limit to meet as part of the claim. You should incur the expenses, and the employer must reimburse these before the end of the following tax year in which the move arose. To summarise, if you relocate in October 2024, the employer must reimburse you for expenses by 5 April 2025.

Further considerations when relocating

Employment law -reasonable travelling distance (UK) 

When you change your primary residence, what is a reasonable distance for relocation purposes? If we look closer at this, the new residence should be a `reasonable’ daily travel distance from your new work location. What’s more, your previous residence shouldn’t be a `reasonable’ daily travel distance from your new work location.

Common sense approach

It’s key to note that the tax office does not define a `reasonable’ travel distance. However, the rules state that you should take a common-sense approach. Therefore, it’s down to your circumstances to some extent. For instance, if your journey is 40 miles each way, this may be regarded as a `reasonable’ travel distance.

Official types of UK office relocation costs -HMRC manual

HMRC’s guide on `expenses and benefits when relocating gives an overview of what you can claim. EIM03101 goes into this further, and their community forum contains additional details. Let’s now investigate these areas in further detail.

What are eligible & qualifying relocation expenses? 

HMRC’s advice states that employee costs up to a value of £8K per annum are exempt from tax. These are known as ‘qualifying’ costs. Indeed, HMRC has an official list of allowable expenses when you relocate for work reasons. This list shows which costs qualify within the annual £8K allowance.

Qualifying relocation expenses (HMRC manual) 

HMRC’s list of eligible costs includes several areas where you can make a claim. Therefore, the official HMRC relocation expenses list shows the types of costs you can claim. Indeed, the types of qualifying costs and benefits that HMRC allows you to claim when you relocate for work reasons are:

  • The costs when you buy or sell a home.
  • Your moving expenses. Indeed, that’ll include any removal expenses you incur.
  • Buy certain items for a new home.
  • Bridging loans.

As an employer, any expenses you can reimburse and claim are the costs for the employee’s relocation. Therefore, you can’t claim a fixed £8K office relocating allowance, but rather, this can include:

  • Removal costs are the first relocation expense. Employees are more than likely to incur removal costs when they move house.
  • Travelling costs and subsistence expenses while the employee finds their new home are another relocation expense. The travel costs could include somewhere to live while the move is underway. Indeed, the employee could stay at a temporary accommodation near the new work site until they find a new permanent residence.
  • Domestic goods for the new residence are another relocation expense you can claim.
  • Legal and estate agent fees and costs related to the sale of your former residence can be included in your relocation claim.
  • Any legal fees, estate agent costs and other fees relating to the purchase of your new residence are another cost of relocation. This includes Stamp Duty on the purchase of the new property.
  • Bridging loans.

Lump sum payments

Some employers may pay an employee a lump sum payment for relocation purposes. This scenario involves your employer providing a single payment to cover all your costs. The employee is responsible for ensuring the money covers all the relocating costs, including packing their belongings and transportation to the new location.

Bridging loans 

Under HMRC guidelines, there are certain conditions for a bridging loan to count as a qualifying cost. Therefore, the conditions for this are as follows:

  • Your employee (or family members) will sell their old home and buy a new one.
  • The loan is required to bridge the gap between buying the new house and getting the money from selling their previous home.
  • The employee uses the loan only to buy the new house or pay off loans related to the old home.
  • The loan can’t be for more than the market value of the old home when you buy the new house.

Certain types of expenses don’t qualify for the HMRC relocation allowance (UK), and these are as follows:

  • 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 can I claim work relocation through a UK contractor company?

If the total cost of your business relocation (UK) exceeds the £8K annual allowance, you can claim the £8K tax fee. However, if you claim for more than this, the excess is taxable relocation expenses, and you’ll pay tax on the amounts over £8K. As a result, you must report the excess on the expenses and benefits form P11D. Indeed, this form reports any taxable benefits and expenses to HMRC. Therefore, if you go over the £8K limit, it’ll include any excess relocation cost claims. These excess claims are subject to Class 1A NIC for your business.

When you claim for relocating, please ensure you obtain receipts for any expenses. You’ll need these in case HMRC asks to see them later. Moreover, you can keep these with the rest of your business records.

As a UK contractor, you may move work location due to landing a new contract. If you do, please follow the rules we outline in this guide. If you meet the conditions, you can claim for your moving costs and save tax on these. However, please ensure you stay within the £8K limit, and you’ll receive tax relief on all your moving costs.

Final thoughts 

It can be a big task when you move house for work reasons. Therefore, if there comes a time when you must relocate as part of your UK contracting career, you’ll move all your possessions. What’s more, in some cases the journey may be a long distance to your new location. In other instances, it may sometimes even involve a move to an entirely new part of the country. Two other guides to read are contractor tax tips and our guide to UK contracting. Both contain key information on how to run your company tax efficiently.

In this guide, we show the current rules around HMRC relocation expenses. Therefore, please bear these in mind if you move for work reasons. If you make the move, please follow these rules, and you can claim relocation costs up to £8,000. As a final note, if you’re a contractor looking to buy a property or relocate for the reasons in this guide, you may wish to read our guide on UK contractor mortgages.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Expenses, Expenses Guides, Member Only Articles (Technical!) /

Share This Guide, Choose Your Platform!

Leave A Comment