No sign of movement over help for relocating workers

EMPLOYEES who are asked to relocate with their company are being penalised by tax rules which are 15 years out of date, according to employers, tax experts and relocation agents who are calling for a radical review to end what they describe as a "bonanza for the taxman".

Thousands of staff are asked to move each year because their job or office has relocated. Yet company moves are far less common than they used to be, primarily because of soaring costs and heavy taxes. Indeed, today's big movers tend to be public sector departments.

HM Revenue & Customs allows employees to receive help towards the cost of any relocation, but this assistance is tax-free only up to £8,000, a figure last revised in 1993.

Since then the costs of moving home have soared. In the early 1990s, you could easily relocate a family for less than £10,000. Yet uprooting a senior member of staff and his or her family today could cost anything upwards of £40,000 once stamp duty, estate agency, mortgage and legal fees are taken into consideration. And that is before counting the additional cost of carpeting and refurbishing a new dwelling.

This cost has become a major disincentive to employers thinking about upping sticks, according to Adrian Leach, an assistant director at relocation agents HCR, who said moving staff only makes sense in the rarest of situations.

He argued: "The costs have soared to such an extent that there has to be an extraordinarily compelling economic reason to move employees from one part of the country to another.

"Simply cutting the rent by moving from an office block in one town to another is no longer sufficient justification. In most cases, the company or the employee will be left badly out of pocket, and usually both. The major gainer is the Revenue, but company relocations were never meant to provide bonanzas for the taxman."

PWC senior partner John Whiting agreed: "We have been trying to persuade the Revenue to look at this again, but they have set their minds against it."

The Confederation of British Industry has also been lobbying on this issue. A spokesman said: "We have pressed the Government hard over this. It has been a matter of concern to us for a number of years now. But with no luck."

Mike Warburton, head of tax at accountants Grant Thornton, added: "It is one of the most blatant examples of fiscal drag you can get. But successive chancellors have refused to increase the allowance because it is a money raiser for the Revenue."

Nevertheless, thousands of employees are currently facing major upheavals after being required to move their families often hundreds of miles to a new place of work.

Scottish Natural Heritage attempted to move 160 staff from Edinburgh to Inverness. Despite bonus payments of £20,000 on top of removal expenses, only 55 went to the new office.

The Scottish Government is reviewing its policy on relocations and geographic dispersals, and the civil service in Westminster is trying to relocate departments to other regions.

BBC Scotland has moved its Glasgow office from Queen Margaret Drive to Pacific Quay, although this did not involve staff moving house. However, 1,500 BBC staff in London are in the process of relocating to Salford.

In the private sector, Nationwide relocated staff after its recent merger with the Portman, and First Choice is considering proposals to move employees from Gatwick to Luton after its merger with Thomson.

Philips Research is moving staff to Cambridge so its scientists can be closer to one of the leading research and development hubs in the world.

Philips Research UK's managing director Terry Doyle said: "Cambridge is one of the top global innovation centres and a hub for many multinationals. We want our scientists to be able to work closely with the best talent, and to nurture their development."

? SO IF your employer asks you to move, what kind of help can you expect and what are the tax implications, asks Teresa Hunter.

PWC senior partner John Whiting explained: "A company move used to be considered a perk because people could receive all kinds of allowances and incentives to encourage them to move. I am afraid those days have gone, at least in the private sector.

"At best, the intention is simply to ensure an employee is able to swap one home for one of equivalent status. But this can be very difficult to achieve within the context of an £8,000 tax-free allowance. You would struggle to carpet and curtain a family house for that kind of money, let alone pay stamp duty."

In many cases, but by no means all, an employer will pay for removal expenses over and above £8,000, and settle what can be a very significant tax bill, particularly for higher earners.

A reasonable package will include covering stamp duty and legal and estate agency fees, although firms may cap what they are prepared to pay for any of these items.

Employers may also, as with the BBC, offer a "guaranteed home sale scheme", whereby you sell your property to a relocation agent, who will offer a price based, normally, on two independent valuations.

However, the valuations are commissioned by the company, and the agent is working on its behalf, not the homeowner's. As such, these valuations can disappoint. If the property subsequently sells for more, the company keeps the profit, but will also absorb any loss in a falling market.

The relocation agent will also take over the management and running costs of the property until it is sold, which can make life easier if you are having to move hundreds of miles away.

Mortgage fees, such as exit charges for a non-portable loan and arrangement fees for a new one, should also be covered by an employer. For this reason, brokers recommend that relocators opt for the biggest fee they can. In general, the bigger the fee, the lower the interest rate. As the employer is paying the fee, this can allow staff to cut mortgage repayments for a few years at no cost to themselves.

However, borrowers should take care. Tax inspectors have started to clamp down on excessive mortgage arrangement fees.

Grant Thornton's head of tax, Mike Warburton, said: "Allowable expenses are those that are genuinely necessary to smooth over the move. They are not designed to subsidise an employee's mortgage for a few years."

But the whole question of allowable expenses is in itself a thorny issue and further highlights how out of touch the current regulations have become.

For example, while cushion flooring is "allowable", laminated flooring and ceramic tiles are specifically excluded. Similarly, replacement carpets, blinds, curtains and rails are eligible, but rugs, light fittings, shower installations and DIY items are not.

Some employees may also be offered additional bonuses to encourage them to move, as with Scottish Natural Heritage, when it moved its head office to Inverness.

A spokesman said: "They were offered £10,000 on moving and then another £10,000 if they stayed for two years. Even with these payments, only 55 staff came, and more than 100 opted to take redundancy."

Under Revenue rules, assistance with moving must be claimed by the end of the following tax year in which the job moves.