Relocation is a term which is self-explanatory in itself. It implies moving from or vacating a fixed location, which could be your business or place of stay (residence) to a new location. New location could be in the same city near to your office or to an entire new city, state or country altogether.
When a person is relocating from one place to another for any reason, he/she normally moves lock stock and barrel i.e. with entire belongings and apart from having prudent foresight it involves active military planning which includes packing his/her entire belongings, tie up with an efficient relocating agency etc. At times, one has to relocate with his/her entire family members and in this case relocating involves lot more planning apart from finding a new accommodation, which is finding a school for children, finding a job for the partner or trailing spouse, arranging a teacher for the family in case you are relocating to a place which has different language and new culture.
Relocation Expenses, is to compensate, in part for the financial loss incurred by the employees who are required to relocate their permanent residence, which is not within reasonable daily travelling distance. As an employer, you can have certain financial obligations like tax, national insurance and reporting in case you contribute to one or many employee's relocation costs, which can include:
- Buying or selling a home.
- Moving from a place to a new place.
- Buying items/furnishings for new home.
- Processing of loans, if any.
- Miscellaneous expenses
Psychological Implications of Relocation
Relocation, whether to different place in same city, different city, different state or country, has its psychological implications, apart from financial implications. More recently, psychologists have observed that relocation from their place of residence to a new locality, state or country has a profound effect on the well-being of individuals and at times it can be highly stressful. We, human beings, have tendency of developing an emotional attachment with our belongings like our clothes, electronic gadgets, neighbors, locality, city, state and for that matter our country as well.
While moving from place of stay to a new place could be a way to spice up their boring life otherwise for many, many relate this activity with loneliness and anxiety. What is more interesting is the far reaching effects of such anxiety and loneliness and most common amongst all is to show the familiarity-liking effect, which is, preference for familiar over unfamiliar objects, because of the anxious feeling they have about moving from their place of stay.
Typical Relocation Expenses
Every move, every city, every country is different and thus relocation expenses may differ based on the distance, duration etc, however there are certain typical expenses related to relocation, which are:
- Relocation Service: The cost of moving can vary widely depending on the service you choose. A full-service mover typically comes with a higher price tag whereas a DIY service is more affordable.
- Moving Help: When you have to move lock, stock and barrel, it would require a moving help who can assist you with the loading, unloading and in some cases, both.
- Travel Costs: The cost to move you, your family, and your pets is another and a major relocation expense. Travel costs mainly depend on the mode of your transportation i.e. if you are travelling by plane, train or road.
- Packing Supplies: While you move your expensive belongings from a place to a far off place, you need to be extra careful about the moving boxes because the normal moving box from a general store aren't built to the same standard as professional moving boxes.
- Finding a New Home: In case you are availing services of a realtor or housing service in finding a new house, there may be certain fees involved with it.
- License and Registration: When you move to a new state or country, you need to check with the Department of Motor Vehicles to determine the new license and registration fees and count these relocation costs for each adult and vehicle in your household.
- Renovations: Depending on where you are moving to, you may want to upgrade your new place. From buying cleaning supplies to last-minute purchases like a new ceiling fan or faucet, these purchases add up quickly.
In case your employer is bearing all or a part of your relocation expenses, the confirmation of the amount of any contribution to relocation costs will be provided by the Department of Human Resources with the letter of offer/appointment. Once in the receipt of the offer/appointment letter, employees should contact the Accounts Section or Expenses Team for advice on meeting the requirements set.
It doesn't matter if you are paying for the move out of your pocket or your company is footing a part or the entire bill, either way you probably want to move as pocket-friendly as possible.
Qualifying Relocation Expenses Payments and Beliefs Costs
If you are an employer and footing either a part or the entire bill, then there is certain tax and national insurance obligations which you need to fulfill by reporting about it to Her Majesty's Revenue & Customs (HMRC). However, there is an upper limit up to which you don't have to deduct or report.
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.
if for example, you stay in your new home only during the week, return to your existing family home most weekends and your family do not intend to move permanently to your new home, then your old home will probably will remain your main residence. In this case, you would not be entitled to the relocation exemption. But if you buy a new home and move into it with your family and rent out your old home, your new home will probably become your main residence. If it becomes your new residence, you will qualify for the exemption.
- Transporting belongings.
- Travelling and subsistence.
- Domestic goods for the new residence
- Bridging loans.
Different universities have their set of rules and policies under which permissible and non-permissible costs of relocation are mentioned, which are:
Permissible costs that may be reimbursed under the university's relocation policy, up to the agreed contribution may not include all categories of costs that might qualify for under HMRC rules. Few examples of permissible relocation costs are:-
- Personal travel to take up your post: The University will reimburse the cost of a single journey to or within the UK based on mode of your travel like car travel, rail travel, sea travel or air travel.
- Removal Costs: The University reimburse the cost of:
- moving normal household effects within the UK
- moving normal household effects to the UK normally via surface freight
- temporary storage of domestic belongings for a period of up to six months
- insurance of domestic belongings during transit and in storage
- Accommodation: If university accommodation is not available to meet the needs of employees, it will reimburse one of the following accommodation costs:
- Temporary accommodation before moving into a permanent home.
- Hotel accommodation on initial arrival in the UK from overseas
- Rent payable on temporary accommodation and detailed within a formal lease agreement. If the rented property is to be the permanent new home then the rent will not qualify as the cost of relocation and will not be reimbursed.
- Sale and purchase costs of property: The cost of the sale and purchase of main residence like solicitors fees in respect of sale and purchase, valuation fees, land registry fees, estate agents fees including the costs of advertisement etc is reimbursed by the university up to an agreed amount mentioned in the offer letter.
- Domestic Goods: for the new residence; HMRC does not have a defined list for what can be classed as a 'domestic good', it does cover 'white goods' ' i.e. washing machine, fridge, freezer etc.( HMRC give the following example like if you have bought an electric cooker bought to replace a gas cooker where there is no gas supply in the new home).
However, there are certain costs which the University will not reimburse and they can be categorized as Non ' Permissible Costs, like:
- Removal Costs: The separate removal costs of individual items like a piano, livestock or domestic animals, work related equipments like files and cabinets etc is not covered under permissible costs.
- Personal Costs
- Property Costs: There are property costs which are not permissible under relocation costs like mortgage payment, cost of disconnection and reconnection of utility services, council tax charges whilst properties are empty etc.
The relocation allowance is worth up to £8,000 and if one meets all the qualification requirements, one need to do any reporting requirements or any tax, national insurance to pay.
The employee's reason for relocation must be for one of the following reasons:-
- New Job: You are starting a new job.
- Change of Duties: If there has been change in their employment duties.
- Change of Location: If there is a shift in the place where you perform your duties i.e. you have to travel to long distance for your work.
However, one need to be careful here in the sense that your old home must not be within a reasonable travelling distance of the new workplace whereas the new home must be within a reasonable travelling distance to the new workplace. HMRC have not defined what a reasonable travelling distance is and each case is treated on its own merits with regard to distance, time and inconvenience caused.
For example, a bridge builder working on the south side of a bridge construction and gets moved to the north side. Although this is only a couple for hundred meters away from the old job location, the employee has to travel a long distance to get to the north side.
Time Limit for Submitting Relocation Expenses Claim
The time limits to claim tax relief associated with the reimbursement relocation costs are determined by HMRC and as per their guidelines; the reimbursement of the costs must be made within one year of the appointment. Because the costs must be incurred, and a claim for reimbursements made, prior to the end of the tax year, following the commencement of your new appointment.
A tax year runs from the 06th April in one year until the 05th April in the following year.
For example, for an appointment made in March 2010, the completed claim for reimbursement must be submitted, and payment made within 2010 ' 2011 tax year and no later than the 5th April 2011.
Under special circumstances, you can claim your relocation expenses outside of the HMRC time period. However, in this case, the relocation paid becomes taxable rather than tax free.
Reporting and Payment of Relocation Expenses
For qualifying costs up to £8,000, you don't have to report or pay anything, however anything above it, you need to report to HMRC for each employee you have provided with expenses or benefits and pay the taxes and national insurance as applicable.
For qualifying costs above £8,000, you would require to report to HMRC on Form P11D and pay Class 1A National Insurance on the amount over and above £8,000 by submitting Form P11D (b), which is a way to inform HMRC about all the expenses and benefits which you have provided to your employee(s) in that particular tax year.
Apart from the expense and benefits details, you would also need to submit Form P11D (b) if:
- If you have submitted Form P11D forms before
- If you have paid for the employees' benefits and expenses through your payroll
In this case, you can inform HMRC online that you are collecting tax on benefits and expenses through your payroll, instead of using form P11D. To avail this, you have to add amount equivalent to their expenses and benefits to their pay and then tax them through the payroll. However, for the non-payrolled benefits, you would need to send a P11D form.
- If you have been asked by HMRC to submit the same. HMRC generally send you the form or they will ask you to submit the same via an email.
If you don't owe any National Insurance to HMRC i.e. you haven't paid any expenses or benefits to any employees and yet have got a reminder from HMRC, you can inform HMRC that you don't owe Class 1A National Insurance by either signing in with the government gateway or by filling up the declaration form, in case you are an agent and your client has not paid any expenses in that tax year either directly to any employees or through their payroll.
However, in case you have to pay Class 1A National Insurance, then you should pay the same by:
- 19th July, if the payment is by post &
- 22nd July, if the payment is through an electronic medium.
While submitting Form P11D or Form P11D (b), you need to exercise adequate precaution and fill in the details correctly because in case there is an error, you need to submit it again with all the benefits and expenses for that particular tax year. In case, you are making corrections for a different year, then you need to mention that the amendment is for the different tax year to the one printed on the form and the tax year you are making the amendment for.
For example, if you have sent a P11D form showing a car benefit of £2,100 and a medical benefit of £300,instead of £500. In this case, you have to re-send the P11D form showing medical bill of £500 as well as car benefit of £2,100.
In case, if you have sent a P11D(b) form showing you need to pay £10,000 of Class 1A National Insurance instead of £15,000, then you need to re-send the P11D(b) form showing the amount £15,000.
What makes the correction process more tedious is that you have to submit the corrected forms on paper, even if you have submitted it online, on the below address:P11D Support Team
HM Revenue & Customs
What Needs to be Reported
If you are an employer, you might need to report to HMRC for any expenses or benefits provided by you to your employees, depending on whether it qualifies under qualifying or non-qualifying costs and its value as well.
Each expense and benefit has to be calculated differently and based on that you may need to pay tax and national insurance on them. For example,
You don't need to pay anything or to report to HMRC on the cost of certain types of accommodation like if it:
- Domestic or Personal Accommodation: In case you are a sole trader or if you are providing your house to your employee who is also your close relative and happen to work in your business. However, if you are a company or in a partnership or providing your personal accommodation to someone who is not your family member ( close relative), cost of accommodation will not be exempt and you have to report it to HMRC and pay tax and national insurance, as and if applicable.
- If it is Provided by a Local Council: In case accommodation is provided by the local council on the same terms that it provides to the non-employees, the cost of accommodation will be exempt and you don't have to report to or pay anything to HMRC.
- If it is indispensable: If your employees cannot function without it, i.e. agricultural workers living on the farms. In such case, cost of accommodation is exempt and you don't have to report to or pay anything to HMRC. However, in case you are providing the accommodation to company directors, they should be working fulltime and holding less than 5% of the shares.
- If it is for security reasons: If you have provided the accommodation to your employee(s) to protect them from any kind of threat or danger, then the cost of accommodation is exempted.
However, if the reasons for the accommodation or type of accommodation is not exempted, then you have to pay tax and national insurance on the cost of accommodation as well as on:
- Council Tax
- Water and Sewage Charges
- Heating, Lightning and Cleaning
- Repair, Maintenance and Decoration
- Furniture for daily use
- Staff for housekeeping staff like gardeners, cleaners etc.
In case you have gifted/bought/sold assets like computers, televisions, cars, bicycles etc for your employees then you have to report or pay to HMRC. In case of selling/giving away of an asset, you would need to pay Class 1 National Insurance and tax on its value and also report to HMRC on P11D form. In case you have bought an asset from you employee on price higher than its present market value then the premium you have paid is counted as earning and it should be added to the employee's other earnings and tax and Class 1 National Insurance need to be paid.
Food and Groceries:
If you are providing food and groceries with no resale value to your employees or directors, then you have to report it to HMRC on P11D form and pay Class 1 National Insurance on the cost.
In case of holidays, what you need to report to HMRC depends on who arranges and pays for the holidays. In case you are providing them with holiday vouchers which they can exchange for a holiday, then you have to report its cost on P11(D) form and deduct and pay Class 1National Insurance(not the PAYE tax) on the cost to you. Similar is the case if your employees arranges for the holiday. However, in this case, if you reimburse the cost of the holiday, then you will need to add the amount to their other earnings and deduct and pay PAYE tax and Class 1 National Insurance through payroll.
If you are paying for the holiday of your employee on your own, in this case, you have to report its cost on form P11(D) and pay Class 1A National Insurance on the cost to you.
Shuttle Service/Work Bus Service
In case you are providing works bus service to your employees, then you don't have to report the cost of providing a bus to bring your employees to work. However, the service must be for journeys between work and home, from one workplace to another or from workplace to local amenities (should not be more than 10 km). The works bus service should be for all employees, irrespective of whether they avail it or not and it should be carrying 12 or more passengers or more than 9 passengers in case of minibus.
Company Cars and Fuel
As an employer, if you are providing company cars and fuel to your employees then depending on its nature , you have to report its cost of HMRC and obey tax and national insurance obligations. In case, your employees use their own cars for commuting between office and home, you don't have to report to or pay anything to HMRC. However, if office cars are used for private reasons, then you have to report its cost to HMRC.
Employee Liabilities and Indemnity Insurance
For any expense made by you on legal count for any of your employee, you must report its cost on form P11(D) to HMRC. However, you don't have to deduct or pay any tax or National Insurance on it.
Apart from the above mentioned expenses/benefits, there are various expenses and benefits for which you need to check if they need to be reported to HMRC and for any tax and National Insurance obligations, like:
- Car Parking Charges
- Christmas Bonus
- Club Membership
- Credit and Debit Cards
- Home Phones
- Mobile Phones
- Personal Bills
- Trivial Benefits
How to Report to HMRC
For any type of expenses or benefits you have provided to your employees, you can report its cost to HMRC either online or by filling the forms P11D and P11D (b) forms.
In case you are opting for online, you can use any of the following methods:
- Commercial Payroll Software: In case your employee strength is lesser than 10 in number, then you can use free payroll software, otherwise you have to go for paid-for software, which are tested and recognized by HMRC. Software, recognized by HMRC can report PAYE information online and in real time.Payroll software help you with tasks like recording your employees details, reporting payroll information to HMRC, working out the value you need to pay to HMRC, calculating statutory pay like maternity or sick pay, working out employees' pay and deductions etc. So, before going for any payroll software, you need to check for the services they can provide.
Examples of free payroll software for business with lesser than 10 employees are IRIS Payroll Basics, Kashflow Payroll, Free Payroll Star, Free Payroll Bureau, RTI Lite etc.
Examples of paid payroll software for business with more than 10 employees are Paypoint, Accentra Payroll, ABC6 Payroll, Primo Payroll etc.
- HMRC's PAYE Online Service: When you register as an employer with HMRC, you get your login credentials with HMRC, which you can use to send payroll reports to HMRC, appeal a penalty, get reminders/alerts from HMRC in case of late payment or reporting, access tax codes and notices about your employees etc.
In case you don't have a login, you will need to enroll for PAYE Online separately.
HMRC also send you information regarding your employees like tax code notices (P6 & P9), student loan notices (SL1 & SL2), National Insurance Verification notices (NVR & NOT), generic notifications like late reporting and late payment alerts,which you can access by logging in to your PAYE Online account.
- HMRC's Online End of the Year Expenses and Benefits Service: Employers can use online form P11D and P11D (b) to report end-of-year expenses and benefits.
Recovery on Termination or Resignation of Employment:
In case there is significant cost involved in relocating an employee, then in the event of him resigning from his post, he might be required to repay a percentage of the money spent on him during his relocation. The terms and conditions for the same are mentioned in his Letter of Offer.
At times, a part of your relocation expense is paid by your employer and it certainly helps in reducing the financial burden on your pocket, however the tricky part is to reclaim for the expenses which you have incurred on your own. Because you can claim only till the amount £8,000 and that too in a limited time frame. Calculating relocation expense requires careful calculation under various headers and thus creates lot of confusion and misunderstanding.
To save yourself the trouble of determining your eligibility and claiming your expenses, it is always advisable to outsource services of an established accounting firm, like DNS Accountants, who with the help and experience of their expert team members can assist you in a matter as difficult as calculating relocation expense and its claim.
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