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:
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.
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:
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.
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:-
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.
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:-
However, there are certain costs which the University will not reimburse and they can be categorized as Non ' Permissible Costs, like:
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:-
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.
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.
For example, for an appointment made in March 2018, the completed claim for reimbursement must be submitted, and payment made within 2018 ' 2019 tax year and no later than the 5
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.
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:
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 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:
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:
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:
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:
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.
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.
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.
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.
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:
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:
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.
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.
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 in Harrow, 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.
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
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