At some stage, whilst working via your limited company, you may face a situation where you need to relocate to take up a new contracting role. You may be able to offset your moving costs against your company’s tax bill.
In this article, contractor specialists, Intouch Accounting, explain how HMRC treats relocation expenses for tax purposes.
The good news is that HMRC will allow your limited company to claim a Relocation Allowance – up to £8,000 – tax free, of qualifying expenses.
However, in order to be eligible to claim the Allowance, the director/employee MUST meet all four of the following qualifying criteria. If you only meet three you will not qualify, so you need to take care.
1. Change to employment
The first condition is the most important one; you must change your main residence as a result of one of the following changes to your employment/contract engagement:
- Starting a new job, this must be a significant distance from your current location.
- A change of the 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.
2. Distance from workplace
The new home must be a reasonable daily travelling distance of the new workplace and on the flipside, the old home is not a reasonable daily travelling distance. What constitutes reasonable daily travelling distance is unfortunately not defined by HMRC. The legislation states to apply common sense and to take account of local conditions.
3. Time limit
The next condition is that there is a time limit to make the claim. The expenses must be incurred/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 January 2019, the company must pay the expenses to you by 5 April 2020 or you lose the tax relief and will have to treat the all payments as a benefit in kind, with no allowance.
4. Type of expense
Finally, the amount incurred must be for genuine expenses and benefits rather than an £8000 allowance. The expenses and benefits must be one of the below
- Bridging Loans
- Related to the sale of a former property
- Purchase of new residence
- Removal Costs
- Travel and subsistence costs associated with finding your new home
- Goods of a domestic nature for the new property.
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.
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.