Jennifer Adams considers the tax implications of providing accommodation for a live-in carer.
Some jobs traditionally come with accommodation – the most traditional of all being those of farm workers, lockkeepers, and caretakers of blocks of flats.
However, the lack of affordable care home provision means that increasingly families are looking to provide accommodation privately for carers who can be on hand and on call throughout the night. For individuals with higher care needs, live-in care can be more cost-effective than a care home, especially when care homes charge per person. Live-in carers also have the capacity to support more than one person at a time.
Employed
Live-in carers will usually be either employed by a care agency or directly by the person receiving care (or their family). It is relatively uncommon for live-in carers to be classified as self-employed, given the nature of their work.
If directly employed, the provision of living accommodation has the potential to be taxable as earnings under general tax principles and a benefit-in-kind (BIK) charge may arise unless it is exempt. The living accommodation will be exempt if 'necessary' for the proper performance of the employee’s duties, or if provided for the 'better performance' of those duties and it is 'customary' for that type of employment to be provided.
‘Necessary’ accommodation
The 'necessary' accommodation test sets a high standard, requiring proof that the employee could not effectively perform their job unless they were living in that specific property.
For example, a full-time carer who lives in a room in the same house as the owner would pass the test, but a carer who is provided with accommodation off-site may find it more challenging to prove even if they are employed full-time.
‘Customary’ and ‘better performance’
The ‘customary’ test requires proof that the provision of accommodation applies to most such employees, and that the practice has been ongoing for a long period.
For example, HMRC accepts it is ‘customary’ for managers of camping and caravan sites to live on or adjacent to the site. The fact that the accommodation is near to the employee’s work or the patient's home will not be enough to persuade HMRC to grant the exemption (see HMRC’s Employment Income Manual at EIM11349). It must be shown that it is customary in that kind of employment generally for accommodation to be provided. HMRC’s view is: ‘a practice is customary if it is recognisable as the norm and if failure to observe it is exceptional’.
The ‘better performance’ test is also objective, requiring proof that by occupying the provided accommodation, the employee can perform their duties more effectively than if they lived elsewhere. The test is not satisfied merely because accommodation is provided close to the place of employment so that the employee can get to work more easily. It is not enough to show that the accommodation is provided close to the place of employment for an easier commute. The test is only satisfied if it can be shown that the accommodation significantly enhances the employee's ability to perform their duties.
HMRC will accept that the ‘better performance’ test is met where:
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the employee is on call outside normal hours;
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is called out ‘frequently’ (not defined); and
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‘the accommodation is provided so that the employee may have quick access to the place of employment or other place to which the employee is called’ (EIM11350).
There is no statutory definition of ‘living accommodation’; therefore, it is given its everyday meaning. As such, it does not cover accommodation in a hotel room or other forms of board and lodging.
Calculation of benefit
The carer-employee will be subject to the benefit-in-kind (BIK) rules for the accommodation provided, should the accommodation provided not be exempt.
Unlike the general rule for BIKs (which are calculated based on their ‘cash-equivalent value’), the provision of living accommodation is not simply the cost to the employer. The method by which the cash benefit charge on accommodation is calculated depends on whether the property is:
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rented by the employer;
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owned by the employer and is worth less than £75,000; or
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owned by the employer and is worth more than £75,000.
The charge is based on the gross rateable value (also known as the ‘annual value’) of the property, or the rent paid by the provider less any amount the employee pays back. ‘Annual value’ is based on the now defunct system of property rates, and is defined as the rent which might reasonably be expected to be obtained if the property was let on the open market, assuming the tenant undertook to pay all taxes, rates and charges usually paid by a tenant and the landlord undertook to bear the costs of the repairs and insurance and the other expenses (if any) necessary for maintaining the property in a state to command that rent.
Extra charge and adjustment
If the property was purchased, there will be an extra charge if it originally cost more than £75,000. The extra charge is calculated as the excess of the cost above £75,000 multiplied by the official rate of interest (3.75% at the time of writing).
The cash equivalent of the benefit is therefore calculated as:
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the cash equivalent as calculated for property costing £75,000 or less; plus
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additional yearly rent – the excess of the cost (including the cost of any improvements) over £75,000 multiplied by the ‘official rate’ of interest; minus
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any rent payable by the employee to the extent that it exceeds the annual value, or the total of any rent payable.
The BIK is reduced on a proportionate basis if the employee only occupies the property for part of the year.
Related expenses
Sometimes the employer will also pay for expenses or services relating to the accommodation provided (e.g., heat and light, cleaning or gardening, the provision of furniture, equipment or other items which are normal for domestic occupation, repairs and maintenance). If such expenses are paid for, a separate BIK arises, charged in its own right. Note that this charge is also levied in circumstances where the living accommodation BIK may be exempt.
A limited exemption applies to expenses if certain conditions are satisfied (ITEPA 2003, s 315). If this section applies, the amount that must be reported as a benefit for expenses connected with the living accommodation is subject to a ceiling of 10% of the net earnings received from the employment.
Example: Taxable benefit cap
Jay is employed as a full-time carer, earning a salary of £10,000 a year. He lives in a flat attached to the main house. HMRC has agreed that the accommodation is exempt.
Jay received other benefits-in-kind amounting to £3,500. In the year, the employer paid £1,700 for the heating, lighting and internal decoration of the job-related living accommodation.
The employment income calculation for the year will be:
Salary £10,000
Other benefits £3,500
Total £13,500
Heating, lighting and internal
decoration 10% of £13,500 = £1,350
(less than the cost of £1,700) £1,350
Taxable employment income £14,850
Practical tip
Most BIKs, income tax and Class 1A National Insurance contributions (NICs) will need to be reported to HMRC via PAYE through real time information from April 2027. However, HMRC has confirmed that forms P11D and P11D(b) for income tax and Class 1A NICs respectively, will remain available to those who do not wish to use the voluntary payrolling option to report the BIK on accommodation. A timeline for mandatory payrolling of the accommodation charge is to be announced at a later date.
