When you run your own UK limited contractor company, there may come a time when you need to move house for work reasons. As a result, you may incur business relocation costs. What’s more, when you do relocate while contracting and incur 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 in respect of this. Indeed, when we delve into if such costs are tax-free, there’s some official eligible relocation expenses which are set by HM Revenue & Customs (HMRC). Therefore, when we consider HMRC relocation expenses, what is included in relocation expenses (UK) per the tax office? To sum up, you can claim for HMRC relocation costs, 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 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 currently live. You may travel long distances or even go from north to south or vice versa. Therefore, when you travel to the site at the start of week, stay there and travel back at the end of the week these may be long journeys that you’d prefer not to be taking. As a result, you may decide to relocate closer to your new worksite. In this guide, we’ll find out when are relocation expenses taxable (UK) and when they’ll save tax. Also, we’ll also look at when is relocation allowance taxable (UK) and when you can claim your business relocation costs as part of this.
HMRC relocation expenses (UK)
If you relocate for work reasons, what can you claim as a UK relocation allowance for employees with regard to moving costs? When we research this, relocation costs for employees could be as a result of a job relocation due the 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 office relocation expenses as part of their move. However, what sort of relocation costs (UK) can one claim as a relocation tax deduction? What’s more, an employer may offer pay for a company relocation package, however will there be receive tax relief on this?
In this guide, we’ll look at for those that run their own UK company, when are their relocation expenses tax-deductible? What’s more, we’ll research what you can claim for moving costs as a contractor and when can you write off relocation expenses. Furthermore, we’ll look into what type of office moving costs will be allowable business expenses and save your company Corporation Tax. Further in this guide, we’ll take a look into the official HMRC rules in more depth. As part of this, we’ll find out which costs are allowable relocation expenses when you move work location and also the taxation of relocation expenses when you exceed the annual limit.
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There are many common questions from contractors and workers alike around their relocation costs, when they move office. Therefore, when we look at what are allowable moving expenses such questions will include:
- Is there a moving allowance?
- What is the relocation tax allowance?
- Are relocation expenses taxable?
- Are relocation costs taxable?
- What is covered in relocation expenses?
- How to claim relocation allowance.
- Are employee relocation expenses taxable?
- What relocation expenses are taxable?
- What moving costs are tax deductible?
- When are business relocation costs tax deductible?
- Can I claim the cost of moving office?
In this guide, we’ll look at how to claim relocation expenses. What’s more, this will include for a UK contractor, self-employed person or an employed individual.
Official HMRC guidelines on relocation expenses
HMRC’s official guidance allow 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 to this, 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 is unless it’s part of your contract of employment. Some employers may offer financial help, and this may include legal fees, moving costs and temporary accommodation.
When are your contractor relocation costs tax-deductible and the four conditions
There are four conditions for you to meet as part of the official UK relocation allowance (HMRC). What’s more, if you meet only three or fewer of these, you’ll not qualify for the allowance. The four conditions which you should meet, in relation of the UK relocation costs tax-free allowance, are shown below:
You 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 further away from your current place of residence to make a move necessary. For example, you can’t claim for the costs if you move to another part of your town or city, or if you move to a town nearby.
A change in your work duties
You change your duties in terms of your employment and you move to another department or branch of your employer. In turn, you relocate office and this 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.
A change of your 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 nearby to the previous location.
There’s a HMRC relocation expenses time limit in which you have to claim the UK allowance. This means there is a UK relocation exemption time limit to meet as part of the claim. Basically, 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 sum up, if you relocate in October 2023, the employer must have reimbursed expenses to you for this by 5 April 2024.
What else is there to think about?
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 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, the tax office does not define what a `reasonable’ travel distance is. However, the rules do state that you should take a common-sense approach to this. Therefore, it’s down to your own 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: relocation costs’ gives an overview on what you can claim. EIM03101 goes into this further and their community forum on this also contains additional details. Let’s now investigate these areas in further detail.
Eligible relocation costs and the `qualifying’ costs
HMRC’s advice state that employee relocation costs up to a value of £8K per annum are exempt from tax. What’s more, these are also known as ‘qualifying’ costs. Indeed, there’s also an official list of allowable relocation costs available from HMRC. To sum up, this list shows what types of costs qualify as part of the annual £8K allowance.
Qualifying relocation expenses (HMRC manual)
HMRC’s list of eligible relocation costs include a number of areas where you can make a claim. Therefore, in the official HMRC relocation expenses list, it shows the types of costs which you can claim as an expense. Indeed, the types of qualifying costs and benefits which HMRC allow you to claim when you relocate for work reasons are:
- The costs when you buy or sell a home.
- Your moving expenses. Indeed, this’ll include any removal expenses you incur.
- Buy certain items for a new home.
As an employer, any expenses which you can reimburse and claim are the actual costs for the employee’s relocation. Therefore, you can’t claim a fixed £8K office relocation cost allowance but rather the relocation expenses (HMRC) allowance can include:
- Removal costs are the first relocation expense. An employee is more than likely to incur removal costs when they move house.
- Travelling costs and subsistence expenses whilst the employee finds their new home is another relocation expense. The travel costs could include somewhere to live while the move is underway. Indeed, it could be stays at a temporary accommodation near the new work site until the employee finds a new permanent residence.
- Domestic goods for the new residence are another relocation expense you can claim.
- Legal and estate agent fees and costs which relate to the sale of your former residence can form part of your relocation claim.
- Any legal fees, estate agent costs and other fees which relate to the purchase of your new residence are another cost of relocation. This also includes Stamp Duty on the purchase of the new property.
Lump sum payments
Some employers may also pay an employee a lump sum payment for relocation purposes. This scenario involves your employer providing you with a single payment to cover all your relocation expenses. The employee is responsible for ensuring the money covers all the relocating costs, including packing their belongings and transportation to the new location.
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 need to 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 the sale of their previous home.
- You need to use the loan only to buy the new house or pay off loans that relate to the old home.
- The loan can’t be for more than the market value of the old home at the time when you buy the new home.
There are also certain types of expenses which don’t qualify for the HMRC relocation allowance (UK). These expenses 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.
How to claim your work relocation through your 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 will be taxable relocation expenses and you’ll pay tax on the amounts over £8K. As a result, you’ll have to 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. In turn, these excess claims will be subject to Class 1A NIC for your business.
When you claim for relocation costs, please make sure you obtain the receipts for any of your costs. Key to note, you’ll require these in case HMRC ask to see them at a later date. What’s more, 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 make sure you 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. Please also ensure you stay within the £8K limit and you’ll receive tax relief on all of your moving costs.
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’ll move all of your personal possessions. What’s more, in some cases the journey may also be a long distance to your new location. In other instances, it may sometimes even involve a move to a completely new part of the country. Two other guides to read are contractor tax tips and our guide to UK contracting. Basically, both contain key information on how to run your company tax efficiently.
In this guide, we show what the current rules are around HMRC relocation costs. Therefore, please bear these in mind if you move for work reasons. If you do make the move, please make sure that you follow these rules and you can claim for relocation costs up to £8,000. As a final note, if you’re a contractor who’s looking to buy a property or you’re relocating for the reasons in this guide, you may wish to read our guide on UK contractor mortgages.
Link to Contractor Advice UK group on