Ian Wright presents the often misunderstood relocation allowance given by H M Revenue & Customs. This allowance exempts payments made to existing employees or new employees who have to relocate in order to get to their permanent place of work.
The relocation allowance is worth up to £8,000 and if you meet all the qualification requirements you do not have any reporting requirements or any tax/NIC to pay.
The employee’s reason for relocation must be for one of the following reasons:-
• they are starting a new job
• there has been a change in their employment duties
• there has been a change of the place where their duties are usually performed
The expenses and benefits paid to the employee must be in at least one of six categories:-
• the employee’s sale of their former home
• the purchase of a new home
• transportation of the employee’s belongings to their new home
• associated travel and subsistence costs
• domestic goods for the new home
• bridging loans in relation to the purchase of the new home
Change of Sole or Main Residence
The employee does not have to sell their home for the relief to qualify, however they must change their residence to the new home in order to qualify.
The expenses must be incurred or the benefit given to the employee within one year following the end of the tax year in which the change to their employment occurred. For example, if a company moved its premises from London to Reading in June 2009, you would have until 5 April 2011 to take advantage of the allowance.
Reasonable Travelling Distance
One last requirement for the allowance is that the old home must not be within a reasonable travelling distance of the new workplace, whereas the new home must be within a reasonable travelling distance to the new workplace. Legislation has not defined what a reasonable travelling distance is. Each case is treated on its own merits with regard to distance, time and inconvenience caused. For example, a bridge builder working on the south side of a bridge construction and gets moved to the north side. Although this is only a couple hundred metres away from the old job location, the employee has to travel a long distance to get to the north side.
Which Expenses and Benefits May Qualify for Exemption?
You would be surprised at the amount of expenses that are covered, and there is not enough room to list them all here. For a comprehensive list you can go to http://www.hmrc.gov.uk/guidance/relocation.htm. Some of the surprise expenses allowable are as follows:-
• generally, all fees in respect of the house sale including estate agent fees.
• related costs in acquiring a new home including Stamp Duty Land Tax.
• costs of replacing domestic goods because the goods used in the old home are unsuitable for installation in the new home, less any amount received for the replaced goods.
What Does Not Qualify?
• any sort of subsidy if the house prices in the new area are higher than the employees previous home
• mortgage interest payments for the employee's existing home
• compensation for any loss made on the sale of the employee’s home
• compensation for other losses incurred in moving home
• re-direction of mail
• Council Tax bills
With expenses such as estate agent fees and stamp duty land tax being allowed it would not take much to go over the threshold of £8,000 and any payments in excess of this will generally have to be reported on form P11D or P9D and taxes paid by the employee accordingly. Class 1A NIC would have to be paid by the employer too.
If you are considering relocating your business you will have to consider redundancy payments, which opens a whole new area of planning.
This article was first printed in Tax Insider in March 2010.