Working as a contractor often comes with a requirement to attend the offices of the client you’re working for. This can mean a fair amount of travel for some, but if a highly desirable contract comes up for grabs in another part of the UK, it can be the case that a limited company owner feels 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 are only considered applicable when somebody moves to a new home as a direct result of the following:
- Starting new employment
- A change in employment duties
- A change in employment location
An employee is not required to sell his or her old home to qualify for tax relief, but the relocation must result in a change in main residence. In this case, main residence refers to the property that is considered your family home for most of the time. The property does not have to be owner occupied, nor does it need to be elected the main residence for the purpose of capital gains.
Qualifying removal expenses
Any qualifying removal expenses must fall into one of six categories:
- The sale of a former home
- The purchasing 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 for any of the above expenses, the recent employment contract must be within reasonable travelling distance to the new place of residence, but not the former. Legally, there’s no distance specified but all claims are meticulously assessed, with time, distance and level of inconvenience taken into consideration.
Other relocation costs which can / cannot be claimed
Often, people are surprised by how many benefits fall under relocation expenses. It’s a comprehensive list, but generally, all fees and additional costs relating to a house move fall within the bracket. This includes estate agency fees, stamp duty tax and even the cost of replacing domestic goods where those in the former home are unsuitable for installation in the new property.
Any subsidies provided because sale and rent prices are higher in a new area cannot be claimed through relocation expenses, nor can any compensation where a loss is reported in a house sale. Other factors that do not qualify are mortgage interest repayments on an existing home, council tax bills or the redirection of mail.
Although there are some cases where the time period can be extended, it’s at the discretion of HMRC and can prove a complicated, lengthy process.
Any non-qualifying costs or qualifying costs that exceed £8,000 must be reported to HMRC via P11D forms and are not exempt from PAYE tax or national insurance.
It’s uncommon for contractors to claim relocation expenses and for those that intend to, it’s important to keep the IR35 legislation in mind. In my experience, contractors expressing a desire to relocate because of a new client contract are usually relying heavily on that piece of business and committing a vast number of hours to it. Taking the time to check your IR35 status if that is the case would be time well spent.
For more information on claiming relocation expenses, please click here.