Tax Exemptions for Employee Living Accommodation
HM Revenue & Customs has recently re-visited their guidance in respect of employer provided living accommodation, specifically the basis upon which the accommodation can be treated as exempt from a charge to tax.
There are a number of exemptions available, one of these is where the accommodation is provided for the better performance of the duties, and the employment is one of the kind where it is customary for employers to provide living accommodation. HMRC are emphasising that ‘customary’ does not apply to a specific employer alone. The test is satisfied where it is normal practice to provide living accommodation for a specific class of employee.
HMRC recently stated that it is their opinion that the majority of Higher Education and Further Education employers do not provide accommodation to their employees. Consequently, the ‘customary’ part of the exemption was no longer being met.
Whilst only guidance it is generally accepted there is no ‘custom’ where less than half the employee population in a particular kind of employment are provided with living accommodation.
Where the ‘customary’ test is not met, employers should consider whether one of the other exemptions can apply where the accommodation is:
- Provided for the proper performance of the duties; or
- The representative occupier’s exemption is applicable.
A brief summary of both exemptions is set out below.
Provided for the proper performance of the duties
For the exemption to apply it is necessary to be able to demonstrate that it is essential that the employee occupies that particular property for the proper performance of their duties. It may the case that where there is a strong element of pastoral care associated with the employee’s role, the test will have been met.
Representative occupier’s exemption
The representative occupier exemption is provided on a non-statutory basis. It is applicable to employees (and those who succeed to the particular post) who were “representative occupiers” of employer provided accommodation up to 5 April 1977. The provision of accommodation to an employee is treated as exempt from a benefit in kind charge so long as the role remains the same now as it was prior to 5 April 1977.
A “representative occupier” is a person who:
- Resides in a property rent free by the employer; and
- As part of their employment contract is required to reside in that particular house and is not allowed to reside anywhere else; and
- Whose occupation of the house is for the purpose of the employer, the nature of the employment being such that the employee is reasonably required to reside in it for the better and more effectual performance of the duties?
Both exemptions are relied upon by many independent schools in respect of the accommodation provided to their employees.
Changes to the legislation
It is interesting to note that the Government’s intention to change the legislation concerning employer provided living accommodation has been ‘kicked into the long grass’. However, their comments concerning the ‘customary’ exemption does suggest they are looking at those sectors where employer provided living accommodation is made available.
Where employers do provide accommodation, they should review their existing arrangements to ensure they are compliant with the legislation as it currently stands.
If you should have any questions, please contact Nick Bustin, Director of Employment Tax or your usual haysmacintyre contact.