Relocation expenses your contractor company can claim

As a director/employee of your own limited company, if you move home/office due to relocation of your place of work there may be some exceptional and valuable allowances to claim from the company. This is called a relocation allowance, writes Sumit Agarwal, managing director of contractor accountancy firm DNS Associates.

Before I go further and you get over excited, let’s make it very clear that it’s not worth even considering claiming a relocation allowance unless you meet all four of the qualifying conditions. If you meet only three of the conditions and fail one, then you will not qualify.

Once you are satisfied that you meet all four qualifying conditions, then it is time to start working out the qualifying expenses and benefits you can claim. I will not go into extensive detail here, as the most critical part of the relocation allowance is to establish eligibility; from there, it is fairly straightforward for your accountant to work out which costs are eligible from the long list of qualifying expenses and benefits.

Let’s take a look at what the four conditions that you must meet in order to claim the relocation allowance.

REASON for relocation must be one of the following:

  • A new job: you changed your job and place of employment. Your new place of employment must be significantly far away from your current residence to make relocation necessary.
  • Change of duties: your duties have changed and you have been transferred to another department or branch as a result, which means you must travel a greater distance to your place of work.
  • Change of location: the place where you carry out your duties has moved, which means that you must travel a greater distance to your place of work.

CATEGORIES of expenses and benefits must fall into one of the six below:

  • Sale of former residence (= Benefit);
  • Bridging loans: (= Benefit);
  • Purchase of new residence: (= Expense);
  • Removal costs of business/personal effects to new residence/premises: (= Expense);
  • Associated travel and subsistence costs: (= Expense);
  • Domestic goods for new residence: (= Expense).

TIME LIMIT to claim allowance

There is a time limit in which you can claim the allowance, and to qualify, the expenses must be incurred or the benefits must be provided before the end of the tax year immediately following that in which the employee’s circumstances changed due to work, outlined in the first step of this list. So bear in mind, if you changed your residence due to work commitments that meet the criteria given above in July 2012 (Tax Year 2012–13), you must claim all eligible expenses related to your relocation before April 5th 2014.

DISTANCE from place of work

The employee’s new residence must be a reasonable commutable distance from the new place of work; the former residence must not be within reasonable daily travelling distance of the new place of work.

When looking at distance from place of work, please note that HMRC are keen to maintain that your old residence is not within reasonable commutable distance and similarly your new residence is within reasonable commutable distance to your place of work. What is a reasonable or unreasonable commutable distance? Clearly this is down to personal circumstances to some extent, but about 40 miles one way is considered a reasonable commutable distance.

There are some non-qualifying expenses and benefits, these include:

  • Mortgage or housing subsidies incurred by moving to a higher-cost area;
  • Mortgage interest payments for your existing home;
  • Compensation for any financial loss on the sale of of your former home;
  • Compensation for other losses, such as penalties for withdrawing a child from school without sufficient notice;
  • Re-direction of mail;
  • Council tax bills.

Relocation - a case study

Ben relocated his business from London to Birmingham on May 13th 2012. He bought a new house in Birmingham on July 28th and moved that day, having stayed in a hotel between May and July 2012. His family joined him on August 5th and his house in London was sold on August 23rd 2012. The expenses paid by his business and his liability to tax and NICs are shown in the table below. Remember however, that to be eligible Ben must claim these allowances and benefits before April 2014.

Expenses and benefits qualifying for exemption

 

Amount subject to tax

Amount subject to NICs

Travel and subsistence

     

Hotel accommodation May–July

1,880

   

Weekend travel, London to Birmingham

980

   

Family visits to look for new home

800

   

Costs of moving possessions

     

Removal van hire

500

   

Costs of disposing of home

     

Legal fees (sale)

1,000

   

Estate agents fee

1,600

   

Replacement domestic goods 

     

Curtains, carpets, cooker

1,800

   

Costs of acquiring new home

     

Survey fee

400

   

Stamp duty

900

   

Legal fees (purchase)

1,200

   

Interest on bridging loan

     

Reimbursed by business

600

   

 

11,600

   

Less exemption (limited)

 

8,000

No limit

 

 

3,660

NIL

Expenses and benefits not qualifying for exemption

     

Disturbance allowance

2,000

2,000

2,000

Payment for loss on part-used season ticket

200

200

200

Total expenses and benefits subject to tax and NICs

 

£5,860

£2,200

 

Relocation expenses you can claim – conclusion

The relocation allowance can be tricky because the maximum amount you can claim is £8,000, which must be claimed within the specified time limit. This allowance can certainly help reduce the burden on your pocket incurred by relocation, but claiming back expenses in this respect does demand some careful calculation as there is plenty of room for confusion and misunderstanding. Consider the guidance of a trusted and experienced accountant if you’re in doubt.

Tuesday 15th January 2013