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You do not need to report or deduct anything for qualifying costs up to £8,000. For any qualifying costs over £8,000 you must report and pay class 1A National Insurance.

Qualifying expenses and benefits

There is a partial exemption for Income Tax, National Insurance and reporting requirements if you provide an employee with relocation expenses or benefits that meet the four qualifying conditions set out below. These are known as 'qualifying' expenses and benefits.

First, the employee's reason for relocation must be one of the following:

  • the employee starting a new job with you
  • a change in their employment duties
  • a change in the place where their employment duties are normally carried out

Second, the expenses and benefits must fall into one of the six categories below:

  • the employee's sale of their old residence
  • their purchase of a new residence
  • transporting the employee's belongings to the new residence
  • associated travel and subsistence costs
  • domestic goods for the new premises
  • bridging loans

Third, there is a time limit. To qualify, the expenses must be incurred or the benefits must be provided before the end of the tax year after the one in which the employee's circumstances changed (as outlined in the first step of this list).

Fourth, the employee's new residence must be within reasonable daily travelling distance of their new normal place of work, and their old residence must not be within reasonable daily travelling distance of the new normal place of work.

The treatment of non-qualifying costs varies depending on the precise arrangements involved. Generally you will be required to treat the non-qualifying costs as other earnings and treat them accordingly.

Non-qualifying expenses and benefits

A relocation expense or benefit is 'non-qualifying' if it doesn't meet the four qualifying conditions.

Examples of non-qualifying expenses and benefits include:

  • mortgage or housing subsidies for an employee moving to a higher-cost area
  • mortgage interest payments for the employee's existing home
  • compensation for any financial loss to the employee on the sale of their home
  • compensation for other losses, such as penalties for withdrawing a child from school without sufficient notice
  • re-direction of mail
  • Council Tax bills

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Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice.  Please contact us if you have any questions about the information set out above.

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