Employees Relocation Expenses

Employees Relocation Expenses

This guide explains your tax and National Insurance contributions (NICs) obligations if you provide expenses and benefits to an employee in connection with a change in their main residence.

HMRC treats different types of employer support for an employee’s relocation differently – there’s an exemption for certain expenses and benefits connected to relocations that are due to employment-related reasons.

The rules in this area are complex. To go direct to more detailed information, choose the link below to ‘Technical guidance’.

Qualifying’ and ‘non-qualifying’ relocation expenses and benefits

Qualifying expenses and benefits

There’s a partial tax, NICs and reporting exemption if you provide an employee with relocation expenses or benefits that meet all four sets of qualifying conditions set out below. These are known as ‘qualifying’ expenses and benefits.

First, the employee’s reason for relocation must be one of the following:

  • the employee starting a new job with you
  • a change in their employment duties
  • a change in the place where their employment duties are normally carried out

Second, the expenses and benefits must fall into one of the six categories below:

  • the employee’s sale of their old residence
  • their purchase of a new residence
  • transporting the employee’s belongings to the new residence
  • associated travel and subsistence costs
  • domestic goods for the new premises
  • bridging loans

Third, there is a time limit. To qualify, the expenses must be incurred or the benefits must be provided before the end of the tax year after the one in which the employee’s circumstances changed (as outlined in the first step of this list).

Fourth, the employee’s new residence must be within reasonable daily travelling distance of their new normal place of work, and their old residence must not be within reasonable daily travelling distance of the new normal place of work.

A number of additional criteria apply to bridging loans. For details, see the later section ‘Bridging loans’.

Non-qualifying expenses and benefits

A relocation expense or benefit is ‘non-qualifying’ if it doesn’t meet the four sets of qualifying conditions outlined above.

Examples of non-qualifying expenses and benefits include:

  • mortgage or housing subsidies for an employee moving to a higher-cost area
  • mortgage interest payments for the employee’s existing home
  • compensation for any financial loss to the employee on the sale of their home
  • compensation for other losses, such as penalties for withdrawing a child from school without sufficient notice
  • re-direction of mail
  • Council Tax bills

You provide qualifying expenses or benefits

Definitions or restrictions

You provide an employee with expenses or benefits that meet the four sets of qualifying conditions set out in the first section of this guide.

What to report, what to pay – up to £8,000

You have:

  • no reporting requirements
  • no tax or NICs to pay

What to report, what to pay – above £8,000

For employees earning at a rate of less than £8,500 per year, you have no tax or NICs to pay but you must report the expenses or benefits on form P9D – section A(2) – if any of the following apply:

  • you paid an employee’s bills for goods or services related to their relocation
  • you provided any living accommodation benefits connected with the move
  • you provided non-cash vouchers or credit tokens connected with the move

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D – section J
  • pay Class 1A NICs on the value above £8,000

Work out the value to use

The value to use is any amount above £8,000.

Non-qualifying benefits: you arrange the benefit and pay the supplier

Definitions or restrictions

You arrange non-qualifying relocation-related benefits for your employee and pay the supplier directly.

What to report, what to pay

For employees earning at a rate of less than £8,500 per year:

  • report on form P9D – section A(2)
  • you have no tax or NICs to pay

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D – section A, K or L depending on the specific benefits you provide
  • pay Class 1A NICs on the value of the benefits

Work out the value to use

The value to use is the cost to you of providing the benefits.

Non-qualifying benefits: your employee arranges, but you pay the supplier

Definitions or restrictions

Your employee arranges non-qualifying relocation-related benefits, but you pay the supplier.

What to report, what to pay

For employees earning less than the £8,500 rate:

  • report on form P9D – section A(1)
  • add the value of the benefit to the employee’s earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D – section M or N
  • add the value of the benefits to the employee’s earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

Work out the value to use

The value to use is the amount you pay for the benefits.

Non-qualifying expenses or benefits: you reimburse your employee’s costs

Definitions or restrictions

Your employee covers the cost of non-qualifying expenses or benefits, and you reimburse them.

What to report, what to pay

These reimbursements count as earnings, so:

  • add them to the employee’s other earnings
  • deduct and pay PAYE tax and Class 1 NICs using your usual payroll procedures

Work out the value to use

The value to use is the amount you reimburse to the employee.

Source : HMRC

 

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