Removal/Relocation Expenses - Change in Procedures

Change in procedure regarding Advance Revenue Clearance

Statement of Practice - SP IT/1/91 set out Revenue’s practice in regard to certain removal/relocation expenses which were incurred by employees and reimbursed or borne by their employer. The Statement outlined the expenses which could be reimbursed without giving rise to a charge to tax.

One of the conditions governing the Statement was that prior approval had to be obtained from the tax office before an employer could make qualifying payments free of tax.

With effect from April 1998, specific prior ‘approval’ by Revenue will not now be required in respect of the removal/relocation expenses covered by this Practice.

Removal/Relocation Expenses

Introduction

It is an established principle under tax law that, where an employer pays or reimburses the personal expenses for an employee, the amount paid or reimbursed is to be treated as part of the employee’s remuneration and taxed accordingly. In strictness this principle applies to payments made towards the costs incurred by an employee in moving house to take up employment at a new location.

However, it has long been accepted by Revenue that the application of the principle to tax certain removal/relocation expenses should be relaxed in genuine cases of employees having to incur expenses to move to a new employment location and the payment made by the employer towards the expenses results in no net overall benefit to the employee.

Since 1991 Revenue have accepted that the practice may be applied to similar payments made to or on behalf of an employee taking up employment with a new employer.

Conditions which must be satisfied

The conditions which must be satisfied to allow the removal/relocation expenses covered by this Practice to be paid free of tax are as follows:

1. The reimbursement to the employee or payment directly by the employer must be in respect of removal/relocation expenses actually incurred
2. The expenses must be reasonablein amount
3. The payment of the expensesmust be properly controlled
4. Moving house must be necessary in the circumstances.

Expenses covered by the Practice

In general, the expenses which can be reimbursed without giving rise to a charge to tax would be those incurred directly as a result of the change of residence and would include:

• Auctioneer’s and solicitor’s feesand stamp duty arising from moving house
• Removal of furniture and effects
• Storage charges
• Insurance of furniture andeffects in transit or in storage
• Cleaning stored furniture
• Travelling expenses on removal
• Temporary subsistence allowance while looking for accommodation at the new location (subject to a maximum of 10 nights at the appropriate subsistence rate as per the schedule in Leaflet IT54 on Employees’ Subsistence Expenses). The vouched rent of temporary accommodation for a period not exceeding three months (this may not be paid concurrently with the temporary subsistence referred to above).

With the exception of any temporary subsistence allowance, all payments must be matched with receipted expenditure. The amount reimbursed or borne by the employer may not exceed expenditure actually incurred.

Any reimbursement of the capital cost of acquiring or building a house or any bridging loan interest or loans to finance such expenditure would be subject to tax.

In effect payment free of tax is restricted to the reimbursement of actual outgoings of a revenue nature incurred at the time of the move.

Procedures being put on a self-assessment basis

In line with Revenue’s desire to ease the compliance burden on taxpayers, and following similar moves regarding Employees’ Subsistence Expenses, the procedures are being put on a self-assessment basis. With effect from April 1998, specific prior ‘approval’ by Revenue will not now be required in respect of the removal/relocation expenses covered by this Practice. However, please see below regarding the keeping of records and the auditing of these records.

Records to be kept - Audit of Records

All records relating to the removal/relocation expenses covered by these procedures should be retained by the employer and may be examined in the event of an audit. These records must be kept for six years unless an Inspector of Taxes indicates otherwise.