Skip to content 
You’ve probably heard about the incentive for directors and employees who pay for relocation. But, in terms of the VAT paid on these, where do you stand with the Taxman?
Costs of relocating
Although relocation is costly, you may believe it is worthwhile to cover these expenses in business to attract the best employee for the position. On the surface, they appear to be a personal cost of the new employee, and as their future employer, you’d expect the HMRC to treat them as a benefit-in-kind. The good news is that such a contribution is tax-deductible, and you won’t have to pay Class 1A NI if certain requirements and restrictions are met. Will the Taxman’s generosity include VAT as well?
The trail of documents
According to the primary VAT guidelines, you may only claim VAT on expenses for which you have the necessary paperwork and which are in your company’s name. As a result, even though the cost is business-related, a bill in the name of an employee or director usually will not be enough. Furthermore, because changing one’s residence is fundamentally a personal decision, it appears that the odds are set against reclaiming any VAT on these purchases.
Who is the recipient of the supply?
The good news is that if you compensate an employee for relocation expenses, the Taxman considers the services provided as a supply to your business rather than to them. The employee, in his opinion, serves merely as a channel for getting and paying for these items. Therefore, the expenditure qualifies as incurred in your trade since your reasons are business-related, not personal. So far, everything appears to be in order, but what about the paperwork, which is in the employee’s name?
Concession
In this situation, the Taxman is willing to bend the rules and consider invoices and other documents in the name of an individual rather than your business as legitimate for reclaiming VAT input tax. So all your new employee needs to do now is give you the original paperwork, which you can file away with your records.
Tip: Make sure your bookkeeper writes on the invoices related to reimbursed relocation expenses; otherwise, a VAT examination may flag them as personal expenses.
Trap: When you give a lump amount to an employee to cover their relocation costs, VAT cannot be reclaimed. You won’t be able to reclaim VAT if you don’t have matching invoices or receipts.
What is included in this package?
You may claim the VAT back on a variety of moving costs, the most common of which are:
- Fees charged by lawyers and real estate agents
- Storage and transportation of personal and household objects
- Costs of maintaining an old house during the move and costs of installing a washing machine in a new home
- During the move, rent a place to stay for a few days.
A word of caution is appropriate. The Taxman will enable you to reclaim the VAT on the costs if you relocate an employee because their house is too far away to commute, or if your business moves and the employee must travel too far each day. However, if the move is only a few miles, he may dismiss your claim for personal reasons. Call our office to talk to a specialist tax advisor for further advice.