This guide explains your tax and National Insurance contributions (NICs) obligations if you provide expenses and benefits to an employee in connection with a change in their main residence.
HMRC treats different types of employer support for an employee’s relocation differently – there’s an exemption for certain expenses and benefits connected to relocations that are due to employment-related reasons.
The rules in this area are complex. To go direct to more detailed information, choose the link below to ‘Technical guidance’.
On this page:
There’s a partial tax, NICs and reporting exemption if you provide an employee with relocation expenses or benefits that meet all four sets of 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:
Second, the expenses and benefits must fall into one of the six categories below:
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.
A number of additional criteria apply to bridging loans. For details, see the later section ‘Bridging loans’.
A relocation expense or benefit is ‘non-qualifying’ if it doesn’t meet the four sets of qualifying conditions outlined above.
Examples of non-qualifying expenses and benefits include:
You provide an employee with expenses or benefits that meet the four sets of qualifying conditions set out in the first section of this guide.
You have:
For employees earning at a rate of less than £8,500 per year, you have no tax or NICs to pay but you must report the expenses or benefits on form P9D – section A(2) – if any of the following apply:
For company directors or employees earning at a rate of £8,500 or more per year:
The value to use is any amount above £8,000.
You arrange non-qualifying relocation-related benefits for your employee and pay the supplier directly.
For employees earning at a rate of less than £8,500 per year:
For company directors or employees earning at a rate of £8,500 or more per year:
The value to use is the cost to you of providing the benefits.
Your employee arranges non-qualifying relocation-related benefits, but you pay the supplier.
For employees earning less than the £8,500 rate:
For company directors or employees earning at a rate of £8,500 or more per year:
The value to use is the amount you pay for the benefits.
Your employee covers the cost of non-qualifying expenses or benefits, and you reimburse them.
These reimbursements count as earnings, so:
The value to use is the amount you reimburse to the employee.
You provide your employee with a cheap bridging loan or reimburse the interest on a bridging loan provided by another party.
For these to count as qualifying expenses or benefits, all of the following conditions must apply:
The amount reimbursed is treated in the same way as any other qualifying expenses or benefits. See the earlier section, ‘You provide qualifying expenses or benefits’.
If your employee has already fully used up the full £8,000 of exemptions (see the section ‘‘Qualifying’ and ‘non-qualifying’ relocation expenses and benefits’ above), then you should treat your bridging loan in the same way as any other cheap loan provided to an employee. Follow the link ‘Loans provided to an employee’ below for guidance on the standard rules that apply to these loans.
If your employee hasn’t used up the full £8,000, then the rules for cheap loans are modified slightly so that the bridging loan is treated as if it had been made on a later date than is actually the case. In effect, this creates an ‘exempt’ period before the loan becomes liable to tax or NICs. Follow the link below to Appendix 7 of ‘Expenses and benefits: a tax guide’ for details of how to calculate this modification – the steps to take are outlined in section 7.3 of the PDF.
‘Expenses and benefits: a tax guide (480)’ – Appendix 7 (PDF 49K)
It’s important to choose correctly between forms P11D and P9D for each employee. The form to use depends on the whether the employee is a director of your company and on whether their earnings are above or below an annual rate of £8,500. For more information – including details of what’s included in the £8,500 threshold - follow the link below.
EIM03100: Removal or transfer costs - table of contents
