Is there tax relief on the cost of moving your home office?

27th January 2020 Nicky Cole
Tax relief

One of Tax Essentials subscribers, who works from home, is moving. The removal firm’s charges are eye-wateringly high and so the subscriber wants to claim a tax deduction for a proportion of the costs relating to his work equipment. Will HMRC allow it?

Business-related expenses

Despite what most people think, the tax rules are intended to be fair and equitable. The trouble is that sometimes they miss the mark. A prime example is the similar but different rules for businesses and employees which deny tax deductions for costs unless they are incurred “wholly and exclusively” for a business purpose. The rule for employees is far more restrictive because it also requires that expense must be incurred “necessarily in the performance of the duties” of the employee’s job. This extra condition posed a headache for our subscriber.

Working from home

Our subscriber owns a graphic design business which he runs from home in a dedicated studio that’s chock full of equipment he uses for work. He’s about to move home and his studio along with it. It would help his finances if he could claim tax relief for some of the cost, which he thinks is fair as about 25% of everything to be moved relates to his work.

Wholly and exclusively – non-employees

You might think the wholly and exclusively rule would prevent a tax deduction for the cost of moving home as clearly it’s mainly a private transaction. However, the legislation offers some help. It says “If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.” Therefore, if our subscriber were self-employed he would be entitled to apportion the removal firm’s bill on the basis that 25% of what was being moved was related to his work.

To prevent any chance of HMRC disputing the apportionment it would be advisable to ask the removal firm to separately identify on its invoice the cost of moving business items, say a home office or workshop.

Wholly and exclusively – employees

The bad news for our subscriber is that because he’s a director of the company which owns the design business, he can’t make use of the rules which allow expenses to be apportioned as it only applies to unincorporated businesses. There’s no equivalent rule for employees (including directors).

Get the company to pay

If our subscriber’s company paid the removal charges it could claim a tax deduction, even if it met the whole cost. However, it would count as taxable income for our subscriber (see The next step ).

There is one circumstance in which a company (an employer) could pay for removal costs, claim a tax deduction and it not count as taxable income for a director or employee. That’s where an employee/director relocates a significant distance to be near to their place of work (or soon-to-be place of work). Unfortunately, the conditions of this tax break mean that our subscriber can’t take advantage of it.

As our subscriber is a director the rules for employment expenses apply. These block a tax deduction unless the expenses are incurred in the course of doing his job. Moving his home is not part of his job and so no deduction is allowed. However, had our subscriber been self-employed he could have claimed a deduction for a proportion of the cost.
If you would like and help and advice on this topic, give us a call!

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