Common expenses and benefits: tax, NICs and reporting requirements

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Relocation expenses and benefits

Relocation expenses and benefits

This guide sets out what your tax and National Insurance contributions (NICs) obligations are if you contribute to the costs of an employee relocating. It explains what tax and NICs you’ll have to pay to us, and which forms you’ll have to use to report these expenses and benefits to us.

On this page:

What counts as a relocation expense?
Work out the value to report
Where to report and what tax/NICs to pay

What counts as a relocation expense or benefit?

Relocation refers to an employee changing their main residence. Any expense associated with such a change of residence counts as a relocation expense, but we provide a partial tax and NICs exemption (up to £8,000) for certain qualifying relocation expenses.

Which relocation expenses and benefits qualify for the £8,000 exemption?

There are four sets of conditions that relocation expenses and benefits must meet in order to qualify for the exemption.

First, the employee’s relocation must be due to one of the following three reasons:

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, only six categories of expenses and benefits qualify for the exemption (for examples, use the link at the end of this section):

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. The expenses or benefits must be provided before the end of the tax year following the employment change referred to 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.

For examples of relocation expenses and benefits, see Appendix 7 of ‘Expenses and benefits: a tax guide’ (480) (PDF 13K)

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Work out the value to report

The general rule is that the value of the expense or benefit is the cost to you of providing it to your employee:

for expenses and benefits meeting the qualifying conditions outlined in the previous section, report only the total value over £8,000
for non-qualifying expenses and benefits, report the entire value

In the case of bridging loans:

if you reimburse interest charges, the reportable value is the sum reimbursed
if you provide a cheap loan to your employee, consult section 7 of Appendix 7 of ‘Expenses and benefits: a tax guide’ (480) – use the link in the previous section.

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Where to report and what tax/NICs to pay

The forms to use and the tax or NICs you must pay in different scenarios are explained below.

The most convenient way to file expenses and benefits forms to us is using either:

our free ‘Online Return and Forms’ service
the interactive forms on our Employer CD-Rom
a commercial payroll software package

You provide qualifying expenses or benefits up to a total value of £8,000

You don’t need to pay us any tax or NICs, and you don’t need to report these expenses or benefits to us.

You provide qualifying expenses or benefits with a total value of more than £8,000

You must pay us Class 1A NICs on the value of expenses or benefits at the end of the tax year if they are provided to an employee earning at a rate of £8,500 or more per year. You must also record the value above £8,000 in Section J of form P11D Expenses and Benefits for these employees.

If the expenses or benefits are provided to an employee earning at a rate of less than £8,500 a year, there are no Class 1A NICs to pay. However, the value above £8,000 must be recorded in section A(1) of form P9D if you do any of the following:

pay an employee’s bills for goods or services related to their relocation
provide any living accommodation benefits connected with the move
provide non-cash vouchers or credit tokens

You reimburse your employee for non-qualifying expenses

This counts as providing extra pay to your employee, so you must pay us PAYE (Pay As You Earn) tax and Class 1 NICs on the value of the benefit. This applies regardless of the employee’s earnings. Add the value to the employee’s gross pay when recording and calculating PAYE tax and Class 1 NICs through your payroll using form P11.

No Class 1A NICs are due, and the benefit doesn’t need to be recorded on forms P11D (for employees earning at a rate of £8,500 or more per year) or P9D (for those earning less than that).

An example of a non-qualifying expense is if you reimburse your employee’s Council Tax bill in their new residence, as this doesn’t arise as a direct consequence of the relocation.

You pay non-qualifying expenses directly, on your employee’s behalf

You must pay Class 1 NICs on these, regardless of your employee’s earnings. Add the value to the employee’s gross pay when recording and calculating Class 1 NICs (but not PAYE tax) through your payroll using form P11.

If the employee earns at a rate of less than £8,500 a year you must report the expenses on form P9D.

You provide non-qualifying benefits

You must pay Class 1A NICs and record the benefit on form P11D if your employee earns at a rate of £8,500 or more per year.

For employees earning at a rate of less than £8,500 a year no Class 1A NICs are due. But you must record the benefit on form P9D.

An example of a non-qualifying benefit is if you provide an employee with a tumble drier where one was not previously owned.

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