Claiming relocation expenses through your limited company

During your life as a contractor, there may be a time when you need to relocate to take up a new contracting role. You may be able to offset many of your relocation costs against your limited company’s tax bill.

In this guide, we explain how HMRC treats relocation expenses for limited company contractors. HMRC allows a relocation expenses exemption of up to £8,000 for qualifying costs. This £8,000 limit has remained unchanged for many years.

1. Change to employment

The first condition is the most important one; you must change your primary residence as a result of one of the following changes to your employment or contract engagement:

• Starting a new job or contract that is a significant distance from your current location.
• A change of duties in your employment.
• A change of location where your duties are performed, for example, your office has moved, and therefore you are commuting a greater distance to work.

For contractors, this typically means starting a new contract with a different client in a new location. Simply renewing or extending an existing engagement in the same place will not usually qualify.

2. Distance from workplace

The new home must be a reasonable daily travelling distance from the new workplace, and on the flipside, the old home is not a reasonable daily travelling distance.

What constitutes a reasonable daily travel distance is, unfortunately, not defined by HMRC. The legislation advises applying common sense and taking into account local conditions.

Many advisors use a practical rule of thumb that a commute of around two hours each way would not be reasonable, but this is not an official HMRC test.

3. Time limit

The following condition is that there is a time limit to make the claim. The expenses must be incurred or provided by your company before the end of the tax year following the one in which they arise.

For example, if the expenses are incurred in February 2025, the company must pay or reimburse them by 5 April 2026, or you lose the tax relief and must treat the payments as a taxable benefit.

4. Type of expense

Finally, the amount incurred must be for genuine expenses and benefits rather than an automatic £8,000 allowance.

The expenses and benefits must be one of the following:

• Bridging loans.
• Costs related to the sale of a former property.
• Purchase costs of a new residence.
• Removal costs.
• Travel and subsistence costs associated with finding your new home.
• Goods of a domestic nature for the new property.
• Legal and estate agent fees.
• Connection or disconnection of utilities and appliances.
• Reasonable costs of replacing curtains or carpets.
• Temporary accommodation while between homes.

Expenses which do not qualify

There are some expenses which do not qualify for the relief; these are as follows:

• Subsidies for mortgages and housing costs for moving into a higher-cost area.
• Mortgage interest payments on your existing home.
• Compensation for financial losses on the sale of your home or other penalties, such as closing gym membership without notice.
• Mail redirection costs or other household bills.
• Council Tax.

If your costs are in excess of £8,000, then you can deduct the relief and only pay tax on the excess.

Any excess above £8,000 must be reported on form P11D and is subject to tax and National Insurance as a benefit in kind.

Record keeping and other considerations

• Keep detailed receipts, contracts, and notes explaining why and when you moved.
• Multiple moves: each relocation must independently meet all four HMRC conditions to qualify.
• IR35: If you are working inside IR35, the company can still reimburse qualifying relocation costs; however, these must be processed correctly through payroll.
• Joint claims: if both spouses are directors or employees of the same company, the exemption typically applies once per move, not per person.

To summarise, if you meet all of the conditions, the relocation allowance can be a good way for your company to fund your out-of-pocket expenses incurred in having to move for your employment.

References: GOV.UK guidance on relocation expenses and benefits and HMRC Employment Income Manual EIM03100.