Some jobs come with somewhere to live, either as a “perk” or because, for whatever reason, the employer wants the employee to live in a certain property.
As a general principle, accommodation provided by an employer is a taxable benefit, but there are exceptions to this:
“Necessary for the proper performance of the duties”
This is a very tough test – it involves showing that in order to do the job, it was essential to live in that property and in no other, so it is not enough that you need to be near your work in the case of an emergency, for example. Examples of employees who are considered to pass the test include:
- Agricultural workers living on farms or estates
- Lock-keepers and level crossing keepers (are there still any of these around?)
- Full time caretakers living on the premises
- Golf club stewards and green keepers
- Pub managers living in the pub
- Sheltered housing wardens, provided they are on call outside normal working hours
That is not an exhaustive list, but in my experience it is very difficult to persuade HMRC that the exemption applies to any other types of employee.
Where this exemption applies, the employee is also exempt from tax if the employer pays the council tax and water bills, but there is still a tax charge on heat and light, and on the use of any furniture, though this cannot be greater than 10% of the employee’s pay.
“Provided for the better performance of the duties” and “customary”
The first part of this test is not so onerous, but the problem comes when you try to persuade HMRC that it is “customary” to provide such employees with accommodation.
HMRC accept the test is met for such employees as policemen, soldiers, clergymen, prison staff, and also for managers of newsagents if they have a paper round. Boarding school head teachers and other staff with pastoral responsibilities such as housemasters and matrons (and bursars, for some reason) also get by, as do stable lads in racehorse yards.
Assistant vets and managers of camping or caravan sites pass the “customary” test, but the “better performance” test has to be looked at for the particular case.
This list is not exhaustive, but again, HMRC resist adding to it as much as they can – indeed, some of their officers have told my clients that their employees cannot be exempt “because they are not on the list”, which is nonsense.
The same rules about other expenses apply as they do for “necessary” employees.
Representative Occupiers
This is a very rare exemption – rare enough for most HMRC officers not to have heard of it – and it applies only to an employee in a post who qualified as a “representative occupier” as at April 1977. It also applies to the successors to that job if their 1977 predecessor qualified for the exemption. Broadly speaking, it applies where in 1977 the employee concerned was required to live rent free in a particular property by his employer, and this requirement was for the better performance of the duties of the job.
As with the two statutory exemptions above, similar rules apply as regards to other accommodation expenses.
Security Exemption
This only applies where there is a specific threat to an employee’s personal safety and is so rare we can ignore it here.
Tax Charge if No Exemption
The taxable benefit on accommodation is extremely complicated where none of the above exemptions apply, but very broadly the charge depends on whether the accommodation concerned is rented or owned by the employer. If it is rented, the benefit in kind is the rent paid but if it is owned by the employer, the benefit is based on the cost of the property, or in some cases with older property, its market value.
Essentially, you deduct £75,000 from the cost or market value and then apply the “official rate of interest” (currently 6.25%) to the balance. To this you add the “annual value” of the property, which is (in England and Wales) the 1973 gross rating value (or if the property was not there, an estimate of what this would have been).
If only to avoid the nightmare of doing this calculation (which I have simplified considerably for the purpose of this article), it is worth considering if your employee qualifies for any of the exemptions described above!
