Changes to living accommodation rules

8th September 2020

Withdrawal of the representative occupiers exemption from 6 April 2021

Currently there are a limited number of exemptions where a benefit-in-kind does not arise in respect of employer provided living accommodation. There are three statutory exemptions which many independent schools are reliant upon and will apply where the accommodation is provided for:

  1. The proper performance of the duties (‘necessary’ rule)
  2. The better performance of the duties (‘customary’ rule)
  3. The security (special threat) to the employee’s security

However, there is a further concessionary exemption known as the ‘representative occupiers’ exemption which many long-established employers are reliant upon. The representative occupier exemption is provided on a non-statutory basis. It is applicable to employees (and those who succeed to a 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
  • As part of their employment contract is required to reside in that particular house and is not allowed to reside anywhere else
  • 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?

The exemption is provided on a non-statutory basis, part of the ‘grandfathering’ of the exemption which was previously available prior to 5 April 1977.

It has been announced the concessionary exemption will be withdrawn from 6 April 2021.

A summary of the living accommodation rules is set out below.

Living accommodation

As a starting point, where accommodation is provided by the employer to its employees, this will create a taxable benefit. Consideration will then need to be given as to whether the role undertaken by the employee satisfies one of the exemptions provided within the legislation.

Provided by reason of the employment

For an Income Tax and National Insurance (NI) charge to arise, the living accommodation must be provided to a person by reason of their employment. Where the accommodation is provided to a member of staff, it will automatically be deemed to be provided by reason of their employment.

What is living accommodation?

There is no statutory definition of living accommodation and so considering its everyday meaning the term includes any form of accommodation which an employee can reside in, for example a house, flat or cottage.

HMRC provide their own view as to what constitutes living accommodation within their Employment Income Manual (EIM):

The HMRC view is that living accommodation is something that gives the occupant the necessary facilities to live domestic life independently without reliance on others to supply basic needs. In practice we would be looking for an individual to at least have the use of a refrigerator and full cooking facilities, even if such facilities are shared.

As stated above, living accommodation is a taxable benefit unless it falls to be treated as job-related accommodation.

What is job-related accommodation?

The legislation (Chapter 5, Part 3 of ITEPA 2003) which sets out both the charging provisions and the basis upon which any exemptions to a charge to Income Tax will apply, provides for very limited circumstances in which any job-related accommodation will be exempt from a charge to both income tax and NI.

The following is a summary of the statutory provisions:

Proper performance of the duties (‘necessary’ rule)

For the employee, for the role to qualify as satisfying the conditions within Section 99 (1) ITEPA 2003, it is necessary to be able to demonstrate that it is essential that the employee occupies that property for the proper performance of their duties. It may be the case that where there is a strong element of pastoral care associated with the employee’s role, but the test will have been met.

Better performance of the duties (‘customary’ rule)

This exemption within Section 99 (2) ITEPA 2003 applies where both:

  1. The accommodation is provided for the better performance of the duties of the employment; and
  2. The employee’s employment is a unique example where it is customary for the employer to provide living accommodation to their employees.

The above tests, much in the same way as for the ‘necessary’ rules, must be a requirement of the duties of the employment.

Security (special threat) to the employee’s security

No benefit-in-kind will arise where living accommodation is provided where there is a special threat to the security of the employee, special security arrangements are in force, and the employee resides in the accommodation as part of those arrangements. This is a little used exemption.

Action points

Any employer who provides living accommodation to its employees should review existing arrangements to ensure they are able to be able to rely upon on of the statutory exemptions.

Where an employer has been reliant upon the representative occupiers’ exemption, now is the time to consider what changes which need to be made to the provision of the accommodation. This may include, for example:

  • Future reporting requirements
  • Changes to an employee’s remuneration arrangements
  • Discussions with employees about the potential impact the changes will mean for the employee

As a reminder, employers will only have a limited period to review and implement any changes ahead of 6 April 2021.

How haysmacintyre can help

We can assist you in reviewing your existing living accommodation arrangement. Our review can consider:

  • Who is provided with accommodation?
  • Whether the role will benefit from one of the statutory exemptions.
  • The changes the employer will need to consider, especially ahead of 6 April 2021.

Nick Bustin

Employment Tax Director
+44 20 7969 5578
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