Living accommodation taxation

The provision of living accommodation by employers has been in the forefront of tax issues for employers recently. This is because of the removal of the long standing non-statutory exemption for Representative Occupation by HMRC from April 2021.

It is an often misunderstood benefit and getting it wrong can be expensive for employers. It can be complicated both to establish the exemption or to calculate the amount of any taxable benefits. 

Here are ten important things to be consider when providing living accommodation to your employees.

1. Do you report the accommodation and any ancillary benefits to HMRC on forms P11d or on the PSA (PAYE Settlement Agreement)? If not, are you still relying on the old Representative Occupier exemption and have you reviewed to check whether statutory exemptions can apply instead?
2. Do you know how to establish whether the statutory exemptions can apply? Do you have any historical agreements with HMRC and what or who do they cover? Can you rely on them and are they fit for purpose?
3. Do you know how to calculate accommodation benefits in kind where exemptions don’t apply?
4. You may know that the basic living accommodation benefit is based on the annual value, which is defined as the Gross Rateable Value (GRV) of the property, but do you know what this is or where to find it, or indeed estimate it? 
5. Are you aware that the total taxable benefit in kind for living accommodation depends on whether the property cost the employer £75,000 or more (including any capital improvements)? Or that it is based on the total rent employers pay to third party landlords.
6. Did you know that utilities paid for or reimbursed by employers are always taxable on employees whether the living accommodation is exempt of not?
7. Did you know that water rates and council tax paid or reimbursed, by the employer to employees qualifying for the living accommodation exemption, are also exempt? However, did you know that they are taxable on all other employees with taxable living accommodation?
8. Did you know that if you provide furniture with the living accommodation, it gives rise to a taxable benefit in kind? This is irrespective of whether the living accommodation itself is exempt.
9. Do you know how you should deal with other ancillary items such as the provision of a cleaner or gardener? Did you know that these are also taxable benefits, irrespective of whether there is an exemption for the living accommodation?
10. Do you know that there is an overriding limit, for tax purposes, on ancillary benefits where living accommodation is exempt and do you know how to calculate it for P11d or PSA purposes?

Where our clients provide living accommodation, these are some of the fundamental points we frequently have to help them with. 

Often employers do not address the issues but simply follow “what we did last year” without considering the wider issues, even where exemptions may apply. There are other taxable benefits arising with the provision of living accommodation but these are frequently overlooked on the basis that “they must also be exempt”.  

This is not a straightforward issue, the exemptions are difficult to understand and where taxable benefits do arise, they are potentially complicated to calculate. As explained at the outset, getting it wrong can be very expensive for employers and can cause problems with the affected staff, so it is important to make sure you take matters seriously. We advise taking specialist professional advice where there are any questions or doubts on this matter.