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Living accommodation: An expensive ‘perk’?

Shared from Tax Insider: Living accommodation: An expensive ‘perk’?
By Jennifer Adams, June 2021

Jennifer Adams considers the tax charge of an employer providing living accommodation. 

Some jobs come with somewhere to live, either as a ‘perk’ or because the employer wants the employee to live in a particular property. If this situation applies, a benefit-in-kind tax charge is levied on the employee, and employers are charged National Insurance contributions (NICs) (unless specific exemptions apply).  

The charge is on any employee, director, or member of an employee’s or director’s family or household allocated the accommodation, even if the accommodation is not used. Living accommodation includes all kinds of residential facilities, but not overnight or hotel accommodation or board and lodging. 

Coronavirus: What’s the position?  

During the coronavirus pandemic, the question about taxable benefits of accommodation was frequently asked of HMRC by taxpayers. The rules have not been relaxed and remain such that where an employee is working at a permanent workplace, and their employer provides accommodation, the benefit-in-kind charge applies.  

However, if the employee is working at a temporary workplace and is provided with accommodation, there is no charge.  

Calculating the taxable benefit 

The taxable amount is the greater of the ‘annual value’ of the property or actual rent paid (if not owned by the company) less any contribution made by the employee and less any allowable deduction for expenses that the employee may be obliged to incur as holder of the employment. 

HMRC bases the ‘annual value’ figure on the 1973 gross rating values, which have not been updated since domestic rates were abolished in 1990. For new or materially altered buildings, employers are asked to estimate the value as if the domestic rates system had continued. If no value exists, the district valuer can be consulted.  

‘Additional charge’ 

As there is no domestic rating in place, the rateable values used do not reflect the true, current rental value. To align the value with market rent, HMRC decided to levy an ‘additional charge’ on accommodation where the cost exceeds £75,000. 

The ‘cost’ in this calculation is the cost of the property plus improvements up to the end of the previous year of assessment. The calculation is made by taking that cost, multiplying the ‘official rate of interest’ for the period by the excess cost over £75,000 and deducting any rent paid by the employee not used in the calculation for the ‘basic charge’ (i.e. ‘excess’ rent). 

Example: House provided by employer 

ABC Ltd provides an employee with a house which cost the company £175,000. The gross rating value has been agreed with the district valuer as being £2,000. The employee pays rent of £2,500 per annum.  

The 'official rate' for 2021/22 is 2.00%. 

The tax charges on the employee will be: 

(a) Basic charge - Nil (the £2,500 rental is more than the gross rating value of £2,000)  
(b) Additional charge : 

Cost of providing accommodation 

£ 175,000 

Deduct limit 

£(75,000) 

Excess 

£100,000  


£100,000 x 2.00% = £2,000 

(c) Excess of rental payable over gross rating value: 

Rental payable by employee 

£ 2,500  

Deduct gross rating value 

£(2,000) 

Unused excess rent 

£    500  


Deduct unused excess rent from additional charge 

The cash equivalent of the benefit is £1,500. 

Exemptions 

The statutory exemptions to the charge are where: 

  • the employee is unable to do their work properly otherwise (e.g. agricultural workers) - the ‘necessary’ test’; or 
  • it is customary to provide accommodation (e.g. a vicar) - the ‘customary’ test’; or  
  • accommodation is required to protect an employee because the type of work they do means that there is a threat to their security - the ‘security’ test. 

The ‘representative occupiers’ exemption that applied where accommodation was provided rent-free because the employee was reasonably required to reside in it, for the better and more effectual performance of their duties, was abolished as of 6 April 2021. 

Practical tip 

Directors do not usually qualify for exemption unless the person has no material interest in the company (5% or above shareholding), and either the person is a full-time working director of the company or the company is non-profit making, or a charity. 

Jennifer Adams considers the tax charge of an employer providing living accommodation. 

Some jobs come with somewhere to live, either as a ‘perk’ or because the employer wants the employee to live in a particular property. If this situation applies, a benefit-in-kind tax charge is levied on the employee, and employers are charged National Insurance contributions (NICs) (unless specific exemptions apply).  

The charge is on any employee, director, or member of an employee’s or director’s family or household allocated the accommodation, even if the accommodation is not used. Living accommodation includes all kinds of residential facilities, but not overnight or hotel accommodation or board and lodging. 

Coronavirus: What’s the position?  

During the

... Shared from Tax Insider: Living accommodation: An expensive ‘perk’?