Tax Relief: Moving outcry on relocations: Companies say limits in Finance Bill would fall far below costs. Roger Trapp reports

BUSINESS and the relocation industry are lobbying against the 'vicious' budget proposals to limit tax relief on expenses incurred moving employees.

Thanks to concessions passed by the Inland Revenue, there is currently no effective limit on 'reasonable expenses'. But the recently published Finance Bill includes plans to restrict tax-free expenses to pounds 8,000. Anything above that would be taxable, leaving companies with the choice of leaving employees to pay the tax or picking up the bill themselves.

Ian Payne, managing director of PRIcoa, is spokesman for the lobbying group formed by his and the other three biggest relocation companies - Blackhorse Relocation, Hambro and PHH Homequity. Together they account for about a quarter of the 20,000 assisted moves carried out every year. Because services vary greatly, it was impossible to put a value on the business.

However, Mr Payne said the planned changes would result in more redundancies - which would be politically unacceptable - and hinder businesses in their struggle to become slim organisations able to respond swiftly to changing demands. Several of his clients in the middle of moves planned months ago faced extra costs of between pounds 2m and pounds 5m as a result of the proposals, he added.

A survey of business carried out by the lobby group found that the true cost of moving employees within the UK - whether as individuals or as part of group relocations - is more than three times the tax-free limit proposed by the Government. The figure is backed up by research from the Confederation of British Industry's employee relocation council.

The total - which rises to about pounds 40,000 for international moves - is much higher than the costs incurred by an individual moving in the normal way because of the speed with which it is expected to take place.

If a company wants a manager to take up a new post, it will generally want him or her to go quickly. As a result, it will typically pick up the cost of 'bridging finance' as well as fees associated with redeeming and arranging mortgages. The cost of using a relocation management company depends - as do legal and estate agency fees - on the value of the property, but it is generally about pounds 1,700.

'There is rarely any bounty involved,' said Michael Kaltz, partner with Ernst & Young, the accountancy firm retained by the lobby group to provide technical assistance. He added that since many job moves resulted from businesses spotting opportunities, the economic recovery might be hindered if companies were unable to react quickly.

In addition, the proposal might be a disincentive to overseas investors - one that could outweigh incentives such as relaxation of the rules on surplus advance corporation tax and the foreign income dividends scheme that were also introduced in the Budget.

It has also been suggested that the pounds 8,000 figure was chosen because the Government wanted to raise a certain amount of revenue - about pounds 200m - and not out of genuine desire to correct the situation. But based on the lobby group's survey, the pounds 8,000 figure would produce more than four times the target.

The Government, however, rejects this argument. A Treasury spokesman said the proposal made sense since it clarified a situation that hitherto had been governed by extra- statutory concessions.

It was 'unreasonable' to ask the taxpayer to subsidise removal costs to an excessive degree, he added.

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