General and background information
The first £8,000 of qualifying relocation expenses associated with an employee required to change their main residence for valid work reasons are exempt from tax. Valid reasons include:
- Starting a new employment.
- Change of the duties of employment.
- Change of the place (or normal place) where their duties of employment are performed.
A qualifying relocation expense has to fit into one of the following broad categories: -
- Disposal or intended disposal of old residence
- Acquisition or intended acquisition of new residence
- Transporting belongings
- Travelling and subsistence
- Domestic goods for the new residence – only fixed items that would be unreasonable to expect your employee to take with them from their old residence.
- Bridging loans.
Anything that does not fit into one the above criteria is a non-qualifying relocation expense and should be entered in Section N.
Employees have until the end of the following tax year in which the relocation commenced to fully utilise the £8,000 exemption. Relocation expenses that would have been qualifying but that were paid late should be entered in Section M.
Finally, the £8000 exemption is related to each relocation event and not to a tax year.
The excess over £8,000 of the total amount of all qualifying expense payments and qualifying benefits (less any contribution by the employee). It is necessary to take into account qualifying expenses and benefits from earlier years.
Measure of benefit
Qualifying expenses and benefits include legal fees, estate agents’ charges, temporary accommodation costs, removal costs and travel costs between the old and the new locations. Consult Booklet 480, Appendix 7 for a fuller list of qualifying expenses and benefits. If the total package exceeds £8,000 then the excess is taxable in full. The same amount is also subject to Class 1A NICs. The expenses are not, as one might expect, subject to Class 1 NICs. Relief is not generally available for expenses incurred after the end of the tax year following the year in which the move took place but, if requested, HMRC may grant a longer period.
The rules for relocation expenses place an overriding limit of £8,000 on the amount of qualifying expenses that can be paid free of tax. However, the employee is no longer required to sell the former home in order to qualify for relief. Provided the employee has to change his or her residence as a result of a transfer within an organisation or to take up a new employment, then relief under the legislation will be allowed.
- Ensure that benefits and expenses are receipted and documented.
- Utilise the overriding £8,000 limit by first claiming those expenses and benefits which do qualify for relief rather than those which do not and are taxable in any event. Non-qualifying expenses should be entered at section N.
- The excess of qualifying amounts over £8,000 does not have to be subject to a PAYE deduction even if paid in a manner that would normally require a deduction. It is sufficient to report it at the end of the year on Form P11D or use a PSA.
- Qualifying expenses and benefits in excess of the £8,000 limit are liable to Class 1A NIC (CWG5 Appendix1).
- Non-qualifying benefits and qualifying expenses paid late are reported at section M (brown box) and non-qualifying expenses at section N (blue box).
- Non-qualifying expenses reimbursed to the employee should be subject to PAYE tax and Class 1 NIC at the time of payment and are therefore not subject to Class 1A NIC.
P11D Form: Section J
P9D Form: Section A(1) (Obsolete after 2015/16 Tax year)
Qualifying relocation expenses payments and benefits
Enter the excess over £8,000 of the total amount of all qualifying:
expenses payments (the gross amount)
benefits (cost to you as the employer less anything paid towards the cost by the director or employee)
Qualifying expenses and benefits are those which are:
exempt, read appendix 7 of the 480 expenses and benefits guide for further information
paid by the ‘relevant day’ and meet the other qualifying conditions, read chapter 5 of the 480 expenses and benefits guide for further information
Exempt costs include many of the normal costs of relocation, such as:
- estate agents’ and legal fees
- stamp duty
- house-hunting visits
- removal costs
If you have difficulty valuing any benefits when calculating the excess over £8,000, contact HMRC before you complete form P11D.
Remember that the £8,000 limit applies to the whole relocation not just to items such as qualifying expenses, benefits provide this year. If there were qualifying items for this director or employee last year, include them when working out whether there’s an excess over £8,000. For non-qualifying relocation costs, go to sections M and N of the P11D.
For further information, read:
- chapter 5 and appendix 7 of the 480 expenses and benefits guide
- paragraph 32 in part 5 of the Class 1A National Insurance contributions on benefits in kind (CWG5)