Reply to: Renting out house to move closer to contract. Tax implications please?

[Scrag Meister]

Hmmmm, surely the idea is that you take on new employment, you give it a go for 6 months, even a year and then are quite within your rights to move due the job being safe and you tried the commute and it is just too much. Surely this seems fair. To relocate in the first 6 months of a new role, permie or contract seems pretty daft while you are still on probation (for permies). Doesn't seem fair. 2 - 3 years then maybe, I see there point but the first 6 months to a year seems pretty tight.

I bet they wouldn't be happy if you used relocation benefits once and then again 6 months later when the job fell through!!!

I came up to London for my first contract of 12 months and knew I would be renting, then I got my first renewal and thought ok another year in rented and commuting at weekends from Devon is ok. Then got a 3rd renewal and thought this needs to be changed. So the decision to move and buy wasn't made til I got my 3rd renewal. Since then I have finished that contract and started another.

[northernladuk]

Initial email
I saw an article on this today and was wondering if it is possible for me to repay some of the relocation costs, solicitors fees etc.. from
my house purchase in London last November from the company. I see that any claim must got through before the end of this current tax year.

HM Revenue & Customs: Income tax and National Insurance contributions on relocation packages

I was claiming mileage and rent on expenses until the end of April 2009, under the 2 year rule, but nothing since.

I purchased the property up here to avoid the ongoing commute from Devon where I still own a property that I am considering renting although at the moment nothing
has happened on this front, but my main residence is now London.

From my Accountant
I cannot see any problems with claiming these relocation expenses in principle, the main thing to consider here is showing a link that the move was triggered by the change in employment – so a clear cause and effect are demonstrated. However, if the house was purchased a significantly long time (perhaps longer than 6 months) after the commencement of the new employment I would suggest it unwise in trying to claim.

My reply
Thanks for the response,

I rented accomodation for the first 2 years of my first contract, with ClientCo1, initial year and first extended year and was able to claim this back as expenses. This initial contract lasted longer then I at first thought it would and I ended up staying in London, and after my second 12 month extension (3rd year) at the end of May 2009 decided to buy a house up here and make this my home.

So the trigger was directly related to the fact that the contract at ClientCo1 was extended for a 3rd year.

Do you not have precedent from any other clients on this matter?

From my Accountant
I have a client claim this before, however it was under slightly different circumstances. He considered he had to move to be closer to potential clients.

The pivotal point around this legislation is the fact that the relocation must be due to a change in employment and that the claim must be made by the end of the year following the year in which the change occurred. The change in employment being the date on which you started at ClientCo1, so the time to claim would have passed.


I feel that a relocation 3 years after will be considered too long after the actual change in employment.

My response
Thanks for your time.

So your other client wanted to be nearer POTENTIAL clients, so no specific change of client/"employer"?

Seems to contradict your next statement about change of employment.

My employment is with MyCo Limited, and that won't be changing anytime soon, but as the director of said company have decided that it is better for my employee (Me), after a temporary relocation of 2.5 years, to be more permanently relocated to a position a reasonable distance from the, then, current contract site, and my now new contract site, and main supply of potential future contracts.


From my Accountant
I disagree that this earlier case is not linked to a specific change of employment. Say for example a large retail firm decided that a shop in Small Southern Town had no passing trade and wanted to move the shop and employees to Large Northern City where there were better trading conditions, the relocation expenses would be allowable as there was the relocation expenses incurred at the point of change of employment.

Your situation seems to be relocation based more on hindsight. If you feel you have a good argument to claim these expenses then please do so, however I think the link would prove too tenuous if challenged by HMRC.

Hmmmm, surely the idea is that you take on new employment, you give it a go for 6 months, even a year and then are quite within your rights to move due the job being safe and you tried the commute and it is just too much. Surely this seems fair. To relocate in the first 6 months of a new role, permie or contract seems pretty daft while you are still on probation (for permies). Doesn't seem fair. 2 - 3 years then maybe, I see there point but the first 6 months to a year seems pretty tight.

I bet they wouldn't be happy if you used relocation benefits once and then again 6 months later when the job fell through!!!

[Scrag Meister]

So does this look no go?

There must have been lots of cases where someone temporarily relocated in rented accommodation, only to be permanently relocated once it was determined that the situation would be on going.

[Scrag Meister]

Accountants correspondence

Initial email
I saw an article on this today and was wondering if it is possible for me to repay some of the relocation costs, solicitors fees etc.. from
my house purchase in London last November from the company. I see that any claim must got through before the end of this current tax year.

HM Revenue & Customs: Income tax and National Insurance contributions on relocation packages

I was claiming mileage and rent on expenses until the end of April 2009, under the 2 year rule, but nothing since.

I purchased the property up here to avoid the ongoing commute from Devon where I still own a property that I am considering renting although at the moment nothing
has happened on this front, but my main residence is now London.

From my Accountant
I cannot see any problems with claiming these relocation expenses in principle, the main thing to consider here is showing a link that the move was triggered by the change in employment – so a clear cause and effect are demonstrated. However, if the house was purchased a significantly long time (perhaps longer than 6 months) after the commencement of the new employment I would suggest it unwise in trying to claim.

My reply
Thanks for the response,

I rented accomodation for the first 2 years of my first contract, with ClientCo1, initial year and first extended year and was able to claim this back as expenses. This initial contract lasted longer then I at first thought it would and I ended up staying in London, and after my second 12 month extension (3rd year) at the end of May 2009 decided to buy a house up here and make this my home.

So the trigger was directly related to the fact that the contract at ClientCo1 was extended for a 3rd year.

Do you not have precedent from any other clients on this matter?

From my Accountant
I have a client claim this before, however it was under slightly different circumstances. He considered he had to move to be closer to potential clients.

The pivotal point around this legislation is the fact that the relocation must be due to a change in employment and that the claim must be made by the end of the year following the year in which the change occurred. The change in employment being the date on which you started at ClientCo1, so the time to claim would have passed.


I feel that a relocation 3 years after will be considered too long after the actual change in employment.

My response
Thanks for your time.

So your other client wanted to be nearer POTENTIAL clients, so no specific change of client/"employer"?

Seems to contradict your next statement about change of employment.

My employment is with MyCo Limited, and that won't be changing anytime soon, but as the director of said company have decided that it is better for my employee (Me), after a temporary relocation of 2.5 years, to be more permanently relocated to a position a reasonable distance from the, then, current contract site, and my now new contract site, and main supply of potential future contracts.


From my Accountant
I disagree that this earlier case is not linked to a specific change of employment. Say for example a large retail firm decided that a shop in Small Southern Town had no passing trade and wanted to move the shop and employees to Large Northern City where there were better trading conditions, the relocation expenses would be allowable as there was the relocation expenses incurred at the point of change of employment.

Your situation seems to be relocation based more on hindsight. If you feel you have a good argument to claim these expenses then please do so, however I think the link would prove too tenuous if challenged by HMRC.

[THEPUMA]

But if you claim that the client site is your 'new job location' then dont you become more 'employee' than vendor?

Hi Anthony

I don't think I would be unduly concerned about IR35, provided you have a robust contract from a substitution, control and/or MOO perspective. But I'm not sure you could have your cake and eat it from a travel/subsistence claiming perspective.

ie if you claim the £8K tax free, you might be pushing your luck if you then claimed travel and subsistence between the new residence and the new workplace.

It is slightly ambiguous as the guidance doesn't specifically say that you can't claim for relocation costs to move closer to a temporary workplace. But that seems a sensible assumption.

Cheers

Puma

[AnthonyQuinn]

IR35??

You can qualify for the exemption if

you have to move home to
...
- continue your current job but at a new location

But if you claim that the client site is your 'new job location' then dont you become more 'employee' than vendor?

[AnthonyQuinn]

Thanks a lot

My pleasure.

This is great. Look forward to your accountant's views. i will forward this to my accountant. Didnt do so far as I thought it needs a tax consultrant rather than an accountant.

[THEPUMA]

Thanks ThePuma.

Interesting read, just emailed my accountant to see if I can claim anything for my house move, Devon to London, last November. Will keep you posted.

My pleasure.

[Scrag Meister]

Have you considered your eligibility to claim relocation expenses of up to £8K tax free? See HM Revenue & Customs: Income tax and National Insurance contributions on relocation packages.

Thanks ThePuma.

Interesting read, just emailed my accountant to see if I can claim anything for my house move, Devon to London, last November. Will keep you posted.

[THEPUMA]

The only problem with that is that the OP would need to be starting a new job - rather than a new gig.

You can qualify for the exemption if

you have to move home to
...
- continue your current job but at a new location

[lje]

Have you considered your eligibility to claim relocation expenses of up to £8K tax free? See HM Revenue & Customs: Income tax and National Insurance contributions on relocation packages.

The only problem with that is that the OP would need to be starting a new job - rather than a new gig.

<edit>At least that's the implication of some of the notes. Not sure it's explicitly specified though...</edit>

[THEPUMA]

Have you considered your eligibility to claim relocation expenses of up to £8K tax free? See HM Revenue & Customs: Income tax and National Insurance contributions on relocation packages.

[lje]

Don't claim any expertise but renting out own property means you can't claim any rental close to contract? If one only rented and simply moved, true, as is no extra cost, but BTL still has costs and tax implications. One is not removing costs of morgage etc, only finding a way to offset them. If you claimed a council tax reduction due to it being empty would you be expected to deduct that form your rent? I don't think so.

is it not covered by EIM31815?
"Once it is accepted that the employee has incurred allowable subsistence expenses you do not need to take into account the costs
saved as a result of the business travel"

Definitely one for taxation web or accountingweb in my view. Not that a question there gets unanimous views, if only we had a clear tax system.

It's the 'wholly and exclusively for business' test which is failed here. If you keep your home for your use and also rent somewhere close to the gig then you can argue that the rented place is only used for business purposes. However, if you do not have another home to go to when you are not working then it fails that test as it is then your main home.

[xoggoth]

Don't claim any expertise but renting out own property means you can't claim any rental close to contract? If one only rented and simply moved, true, as is no extra cost, but BTL still has costs and tax implications. One is not removing costs of morgage etc, only finding a way to offset them. If you claimed a council tax reduction due to it being empty would you be expected to deduct that form your rent? I don't think so.

is it not covered by EIM31815?
"Once it is accepted that the employee has incurred allowable subsistence expenses you do not need to take into account the costs
saved as a result of the business travel"

Definitely one for taxation web or accountingweb in my view. Not that a question there gets unanimous views, if only we had a clear tax system.

[lje]

You may not end up paying much tax on renting you house out though:

• You can allow all of the interest you pay on your mortgage against the rent before you calculate profit.
• If you rent the house out furnished you can allow another 10% of the gross rent against tax before you calculate profit.

Don't forget that you need your current mortgage company's permission before you can rent your house out - they may charge for that. All of these charges can be taken off the rent before you calculate tax.

As others have said you can't claim anything on the rent will be paying.