Business Relocation: The Expenses, Allowance, And Benefits
Business relocation is a process by which a business moves from one place to another. It can be within the same city, or it can be from one state to another. Many factors go into business relocation, such as the cost of moving and the amount of time it will take to get set up in the new location. This blog post will discuss some of the most important aspects of business relocation, including the expenses involved and how to apply for reimbursement.
What is Meant by the Term “Business Relocation”?
Relocation generally refers to moving from one business location to another. It can involve moving to a new office within the same city or moving to a new city or state altogether. Many employees have to relocate with their entire family members. In such situations, relocating involves a lot more planning, such as finding new accommodation, a new school for children, a job for the partner and arranging a teacher for the family, and so on.
What are Relocation Expenses?
Relocation expenses are associated with moving from one business location to another. These can include the following:
- The cost of hiring a moving company
- The cost of renting a storage unit
- the cost of travel expenses (if you are relocating to a new city or state).
Additionally, relocation expenses can also include the cost of setting up your new office, such as buying new furniture or leasing a new space.
If you are reimbursed for any of these relocation expenses, you will need to keep track of all receipts and documentation to apply for reimbursement.
Common Relocation Expenses
However, When you relocate, certain expenses come with it.
Professional Relocating Services:
Relocating can be an expensive process, but there are many different options for how you want to move. A full-service mover will typically cost more than if done on your own with boxes and supplies from online available home-moving companies. Also, they take care of everyone’s belongings packed up in bubble wrap before loading them into their truck, reducing the risk of breakage or damage during transportation which could ultimately save time spent unpacking once they arrive at the destination point.
The cost of moving yourself, your family and your pets can be quite high. The price depends on the mode you choose for transportation, i.e. if travelling by plane or train, and what country they’re going into, which may impact HM Revenue & Customs’ deadline extension policy in certain circumstances.
As you move your expensive belongings from one place to another, it is important that the boxes are sturdy and can withstand wear and tear. If these aren’t professional moving containers or if they were designed for something other than this job, then there could potentially be problems with breakage, which would leave much of our precious cargo in ruins.
Finding a Home
To avail of the services of a realtor or housing agency, one may have certain fees involved.
Vehicles Registration and Licence
When you move to a new state or country, the Department of Motor Vehicles must be aware so that they can adjust your fees accordingly. You will want one document mentioning all members of the household and their respective information, including licence plates if applicable, for proof-of ownership when registering vehicles abroad.
Upgrading of New House
One thing that may not seem so important is upgrading your new place with some basic supplies like cleaning soap and bleach or finally replacing those old lights from years ago when electricity was more expensive.
You may be able to reduce the cost of your relocation by following these tips:
- you should consider hiring a professional company or individual for packaging and moving services because it will ensure that all items are protected during transport while minimising damages
- While relocating to a new place may cost you some extra bucks in terms of renovations.
When you get an offer for a new position, your expenses must be taken care of. If any part of relocation costs come out-of-pocket and are not covered by work or company funds, then contact the Department HR as soon as possible to help meet the requirements set for reimbursement!
Qualifying Relocation Expenses Payments and Beliefs Costs
Employers should know the tax obligations they face when paying employees. To prevent any complications with HMRC, there is an upper limit up until which you don’t have to report or deduct from your employee’s payslips- so make sure it stays below this threshold.
A qualifying relocation expense should fall under the following categories:
- Intentionally leaving the old residence
- Acquisition of new residence:
To determine if you qualify for the relocation exemption, it is important to know what type of residence your new home will be. Suppose your old home will probably remain your main residence after moving into an apartment or house with family members who do not intend on staying there full time. In this case, you would not be entitled to the relocation exemption. On the other hand, if you rent out the old property while your family reside in your new residence, 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.
universities have their own set of rules and policies which are different from each other, mentioning the permissible and non-permissible costs of relocation, which include:
The university’s relocation policy permits reimbursement of up to an agreed contribution for some costs which would otherwise qualify under HMRC rules. Some examples include:
A few permissible items that your institution may reimburse under its pertinent policies and procedures without incurring any additional liability or disadvantage are:-
- Travelling Cost: University will offer reimbursements for car trips within UK and flights if travelling by air.
- Removal Costs: The University will cover the cost of moving your household effects within the UK, including air freight or sea transport. They also offer temporary storage for up to six months at no extra charge.
- Accommodation: University accommodation is available to meet the needs of employees, but if that’s not possible, they will be reimbursed for temporary or hotel accommodations. Furthermore, If you’re making a rental property your new home, it will not qualify for reimbursement. Relocation costs include rent on initial arrival in the UK overseas and are detailed within formal lease agreements.
- Sale and Purchase Cost: The cost of sale and purchase is reimbursed by the university up to an agreed amount.
- Domestic Goods: HMRC have a very vague definition of what they consider ‘domestic goods’, and as such, it can be difficult to know whether or not your purchase will qualify for tax relief. For example, if you buy an electric cooker to replace a gas one because there isn’t any supply in the new home, this would likely still count as eligible “white goods”.
The university will not reimburse the following costs:
- Cost of removing the personal items: The separate removal expenses for individual items like livestock, domestic animals, etc., are unnecessary since they’re not part of a job-related equipment list that would fall under permitted costs.
- Cost of property: The items that are not allowed under relocation costs but are still applicable to your mortgage or utility bill should be considered. These include property taxes, disconnection and reconnection of services like electricity or water if the house is empty.
- Personal costs.
The relocation allowance is an incredible incentive for relocating. It’s worth up to £8,000, and if one meets all the qualification requirements, they don’t have any reporting requirements left with them and National insurance or tax to pay.
Therefore, the following should be the reasons for an employee they want needs a relocation allowance:
- New Job: You have a new job.
- Change of Duties: If employment duties are changed.
- Change of Location: If the employee needs to travel to another place for duty.
You should keep in mind that your old home isn’t too far away from where most of the work happens. But if it’s close enough for them (or anyone) to come by whenever they please, that could cause some problems with time-consuming paperwork! In such situations, we suggest that there should be “reasonable travelling distances” between homes – which depend entirely on each situation based on proximity/distance factors like how often someone wants to access or what type can travel easiest etc., rather than any hard rules set forth by HMRC themselves; since every case is treated differently according.
Consider an example of a bridge-builder who has to travel an extra-long distance because his work location has changed. That happened when one employee was moved from the south side of the construction site, across town or even state lines.
Time Limit for Submitting Relocation Expenses Claim
You should claim tax relief associated with the reimbursement relocation costs within one year of your appointment. However, the time limits are determined by HMRC. As per their guidelines, a claim for reimbursement must be made before this period ends which means it has to happen prior at least partially because you’ve already started working in the UK after being appointed there earlier than expected.
Reporting and Payment of Relocation Expenses
The government wants to make sure you’re paying your fair share of taxes. That’s why for qualifying costs up to £8,000, there is no need to file anything with HMRC and will not be penalized; however, if an employee receives benefits over this limit, then each recipient must submit their paperwork reflecting the amount received as well as pay applicable national insurance amounts every month.
To keep up with all of this new information, you must report any amounts incurred over £8,000 on form P11D and pay Class 1A National Insurance by submitting a request for payment.
Furthermore, you need to submit Form P11D (b) if:
- Already submitted Form P11D forms.
- If you paid for the employees’ benefits and expenses through your payroll and HMRC collects your tax on behalf of those payments, you can inform HMRC by simply going onto their website. Add the amount equal to employees’ 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.
- The instructions for submitting your return are sent out by either the HMRC department or they can be found in an email.
If you haven’t owed any National Insurance to HMRC, i.e., paid your employees’ benefits and yet have got a reminder from the government about owed Class 1A taxes for this year, You can inform them of what is going on by either signing in with their gateway or filling out an easy-to-follow form (which will be sent straight away).
However, If you are paying Class 1A National Insurance, you should pay the same by:
- 19th July, if the payment is by post
- 22nd July, if the payment is through an electronic medium
Exercise adequate caution when filling out Form P11D (a) or (b) for the year you’re submitting it. Ensure that all of your information is accurate because if there’s an error, this will affect what benefits and expenses go with each mistake. Future submissions related to tax compliance must follow suit accordingly–and possibly even more.
For example, if I were making corrections on my 2013 taxes instead of 2012 as originally thought (because we are always supposed to use “current” years), then any new amendment would have had to be designated as pertaining specifically towards the next rather than the next previous.
Is Any Tax Relief Available for Relocation Expenses?
Job-related relocation can result in tax relief for employees who have been given a new or different place of work. The first £8,000 worth of expenses are exempt from taxation under the Earnings and Pensions Act 2003 if they’re incurred before the end of the tax year unless HMRevenue and customs make changes in their fixed deadlines.
To be eligible for tax relief, removal expenses and benefits must fall within one of six categories: disposing or intended disposal of old residence; acquiring a new place to live in through purchase (or renting if you’re purchasing); transporting belongings across town as well as travel costs related to that. You can also get assistance with replacing any domestic goods that will need replacing during this transition period.
Tax relief cannot be claimed for losses incurred in selling an old home if you are employed and your employer has compensated you after selling yours. It is because it’s considered a reimbursement rather than compensation on their end.
What to Report & Pay
If you’re in the UK, taxes need to be paid on every benefit. These include national insurance as well. As an employer, If you have paid tax or national insurance or had provided certain benefits or expenses to your employees, you need to report to HMRC.
You may need to pay tax and national insurance on certain benefits such as:
There is no need to pay any tax or any report to HMRC on these below types of accommodations:
- Domestic or Personal Accommodation:
However, if you are a sole trader or providing your house to an employee who also works for your company and is considered a close relative to you, then it would be exempt from tax. It does not apply in partnerships where one partner may have provided personal accommodation without any financial gain since they’re just using their own home. You have to report it to HMRC and pay tax and national insurance, as and if applicable.
- Accommodation Provided by a Local Council:
You can avoid paying income tax by reporting the value of your accommodation provided by the local council. It is because it’s treated as part of an employee’s wages when providing services for free, so you never have to pay anything else.
- If Accommodation is Indispensable:
If you are living on-site and working in an agricultural setting, then your costs for food or rent wouldn’t need reporting; however, if there are company directors who hold less than 5% shares at any point during their stay – they should report as employed staff members with wages subject to income tax (plus national insurance).
- Security Reasons
The accommodation cost is exempted if you have provided it for your employee(s) as protection against any threat or danger.
When accommodation or type of accommodation is not exempted for the provided reasons, in such case, Tax and National Insurance should be paid on the cost of accommodation and also on:
- Council Tax
- Water and Sewage Charges
- Heating, Lighting and Cleaning
- Repair, Maintenance and Decoration
- Furniture for daily use
- housekeeping staff like gardeners, cleaners etc.
Assets: Bought, Sold or Given
The government requires that you report any assets your employees sell or give away, especially if they are worth more than what was paid. You’ll need to pay Class 1 National Insurance on their value and also send in a P11D form with the information about how much has been earnings-related contributions from this person’s sale/gift of an asset at its present market price so it can be taxed properly by HMRC.
Food and Groceries
The amount you pay in Class 1 National Insurance is determined by how much food and groceries are given to employees without any resale value.
The holiday vouchers provided by the employer that can exchange for an equivalent amount of pay should be reported on the P11(D) form, and Class 1 National insurance should be paid to them by the employer. On the other hand, If employees arrange their vacations at work, it’s up to each employee whether they want any reimbursement; however, in this case, we recommend adding all costs incurred by companies when footing holiday expenses such as flights/hotel etc.
Shuttle Service/Work Bus Service
If you’re providing a bus service to your employees, then it’s not necessary to report the cost of bringing them from their place(s) of employment. However, this work bus service applies only if employees use this type of transport for their work journeys, from workplace to home or workplace to local amenities (within 10 KM).
Works Bus Services must apply equally whether employees take advantage or avoid using these services; all workers qualify as long as at least 12 passengers ride along with each vehicle when operating over registered weight limit roads like most UK motorways.
Company Cars and Fuel
If your employees use their vehicles to commute between the office and home, there’s no need to report this cost. However, in case of private reasons behind usage – like using an individual vehicle for business trips that aren’t related directly to work-related activities – it would be necessary (and taxed) accordingly by HMRC.
Employee Liabilities and Indemnity Insurance
The employer must report all expenses made for employees on a legal count on form P11(D) to HMRC.
There are various types of expenses and benefits other than the above mentioned, such as Car Parking Charges, Clothing, Christmas bonuses, Club Membership, Credit and Debit Cards, Mobile Phones, Personal Bills, Trivial Benefits etc., that Employers need to check if they should be reported to HMRC.
How to Report to HMRC?
The report of employees’ expenses and benefits can report to HMRC in both ways; online and by filling the forms P11D (a) and (b) forms. If you are paying online, you can go for the following methods:
1- Commercial Payroll Software:
Payroll software can help you record your employee’s details, report payroll information to HMRC, and more. Some of the features included in a standard package are: calculating statutory pay like maternity or sick leave, working out employees’ wages (including bonuses), and tracking their hours worked each week – all this without worrying about how much they should get paid.
It is important to have the right payroll software for your business. For example, if you are running a small company with less than ten employees, there are many free options available such as IRIS Payroll Basics or Kashflow. In contrast, larger organizations require paid services to properly track all details regarding their workforce, including wages earned/paid, taxes collected etc. – leading them to utilize software like Paypoint, Acentra, and Primo.
2- HMRC’s PAYE Online Service:
When you register as an employer with HMRC, the tax authority will provide login credentials that can be used to send payroll reports and make other employment-related decisions. You also use these login details in case of emergencies like appeal penalties or receiving notices about employees who have been late paying their wage bills.
HMRC will send you a wide range of tax-related notices (P6 & P9), including employer information, student loan Alerts (SL1 & SL2), late payment alerts, etc. You can access these by logging into your PAYE Online account.
3- HMRC’s Online Year-end Expenses and Benefits Service:
Employers can use P11D and P11D (b) online forms to report end-of-year expenses and benefits.
Recovery on Termination or Resignation of Employment:
When a significant amount is spent on an employer’s relocation, in case he resigns or gets terminated, he must repay a percentage of the amount on his relocating expenses according to the terms and conditions mentioned in the employment contract.
Relocation expenses and benefits should be calculated carefully to avoid confusion and extra expenses. Relocation expenses paid by the employer surely help reduce the employee’s financial burden.
However, it is hard for employees to reclaim the expenses incurred on their own as claiming amount is limited to £8,000. To save yourself from the trouble of calculating and claiming relocation expenses, Clear House Accountants will assist you at every step!
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants and has over 13 years of experience in practice across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. This dexterity led him to be Enterprise Nation’s Top 50 Advisors. Jibran recognised the need to manage the innovative disruptions sustainably early on and shaped Clear House Accountants not just to be compliance specialists but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
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