Some jobs traditionally come with accommodation – the most traditional of all being those of farm workers, lockkeepers, and caretakers of blocks of flats. Other workers such as teachers in boarding schools and hotel workers also frequently “live in”.
The tax system starts from the premise that a place to live provided by your employer is a taxable perk.
Very broadly speaking, the “official” rate of interest (currently 4%) is applied to the cost or market value of the property, and to this are added running costs such as heat, light, and interior decoration (if the employer pays for these), together with a charge (based on 20% of the second-hand value) for the use of furniture if the place is furnished.
This is a very simplified version of the way the taxable benefit is calculated, but it gives the general flavour.
There are three ways in which the provision of accommodation may escape tax:
“Representative occupation”
This is the rarest of the exemptions these days, because you have to show that the particular post held by the employee existed in April 1977 – it does not matter if the current holder of the job is a different individual from his 1977 predecessor, but the same job must have existed, and it must be a condition of employment that the employee lives rent-free in that specific property and nowhere else, and it must be “reasonable” to “require” him to do so, considering the nature of the job.
As you will have guessed, the laws taxing accommodation were introduced in 1977. I have come across a very few “representative occupiers” in my career, mostly living and working on islands!
“Necessary” accommodation
There is an exemption where it can be shown that it is “necessary for the proper performance of the duties” of the job to live in the accommodation provided. This test sets the bar very high – you have to show that the employee could not do the job unless he lived in that specific property.
The categories of employee that HMRC accept qualify for this exemption are:
• agricultural workers who live on farms or agricultural estates.
• lock-gate and level-crossing gate keepers.
• caretakers living on the premises. This only covers those with a genuine full-time caretaking job who are on call outside normal working hours.
• stewards and green keepers living on the premises.
• wardens of sheltered housing schemes living on the premises where they are on call outside normal working hours.
Even in these cases, HMRC will look closely to see if, for example, the caretaker really is on call outside normal hours.
“Customary” and “better performance”
This is the easiest test, but the “customary” part requires you to show that this applies to most such employees, and that the practice has been going on for a long time.
HMRC accept it is “customary” for the following employees to be housed:
• veterinary surgeons assisting in veterinary practices – I believe I was responsible for that one being included, as a result of a case in the 1980s!
• managers of camping and caravan sites living on or adjacent to the site.
HMRC also agreed with me a few years ago that this applied to gamekeepers, but have yet to update their instruction manual.
Having established it is “customary” to provide accommodation, the “better performance” test is not so hard to pass – you only need to show that living there helps the employee to get the job done, not that it is “necessary” to live there.
Practical Tip:
In practice, it is unlikely that a property business could pass either test, except for the camp site managers mentioned above, and the caretakers who pass the harder “necessary” test, so if you provide accommodation for an employee, bear in mind you will be required to report his tax liability (on a Form P11D) each year, and pay Class 1A National Insurance contributions at 13.8%.
James Bailey
