Working as a contractor often comes with a requirement to attend the offices of the client you’re working for. This can involve a fair amount of travel. If a highly desirable contract comes up in another part of the UK, a limited company owner may even feel the need to move home permanently.
In this guide, Joanne Harris, Technical Commercial Manager at Nixon Williams, shares her expertise on claiming relocation expenses when moving home for a new contract.
Relocation expenses – what are ‘qualifying costs’?
Although this is quite rare, changing your main residence for a new contract could mean it’s possible to claim up to £8,000 in relocation expenses. These costs are exempt from tax and national insurance if they are considered to be ‘qualifying’ costs.
Qualifying costs only apply when someone moves home as a direct result of:
Starting new employment
A change in employment duties
A change in employment location
You are not required to sell your old home to qualify, but the relocation must result in a change in main residence. “Main residence” means the property regarded as your family home for most of the time. The property does not have to be owner-occupied, nor elected as the main residence for capital gains purposes.
Qualifying removal expenses
Any qualifying removal expenses must fall into one of six categories:
The sale of a former home
The purchase of a new home
Transportation of goods from the old residence to the new
Associated travel and subsistence costs
Domestic goods for a new home
Bridging loans in relation to a new home
To qualify, the new contract must be within reasonable travelling distance of the new residence, but not the old one. Legally, there’s no distance set out, but HMRC will assess time, distance and level of inconvenience when reviewing claims.
Other relocation costs you can and cannot claim
Many benefits fall under relocation expenses. Generally, all fees and additional costs related to a house move are included. This can cover estate agency fees, stamp duty, and even the cost of replacing domestic goods where those from the old home are unsuitable in the new property.
However, you cannot claim subsidies because property prices or rents are higher in a new area. Nor can you claim compensation for a loss made on a house sale. Other non-qualifying costs include mortgage interest on an existing home, council tax bills, or the cost of redirecting mail.
Although HMRC may extend the time period in some cases, this is at their discretion and can be a lengthy process.
Any non-qualifying costs, or qualifying costs above £8,000, must be reported to HMRC on a P11D form and are subject to PAYE tax and national insurance.
IR35 considerations
It’s uncommon for contractors to claim relocation expenses. For those that do, it’s important to consider the IR35 legislation.
In practice, contractors relocating for a new client contract are often heavily reliant on that engagement and working significant hours on it. In such cases, checking your IR35 status is strongly recommended.
For more detail on claiming relocation expenses, see the official HMRC guidance.
