In some industries and organisations, it is customary for a member of staff to live in, or very close to, his workplace. For example, agricultural workers may live on the farm, tutors may live in college rooms. The accommodation is said to be provided “for the better performance of the duties”.
In such situations there is an exemption from the normal benefit-in-kind charge which would apply where the employee is provided with free accommodation. However, in the Employee Bulletin (issue 75) HMRC warned in that three conditions must be present for the accommodation to be tax free:
- Accommodation is provided for better performance of the employee’s duties;
- The employment is one of the kinds in which it is customary for employers to provide living accommodation to a particular class of employee;
- The employee must be a representative occupier.
The customary test should be applied cross the industry or trade sector as a whole, not just for the specific employer alone. HMRC have said that if less than half of employees in that type of employment are provided with living accommodation, then provision of accommodation is not “customary”.
HMRC are clearly tightening up on when accommodation can be treated as tax free, particularly in the higher and further education sector. If you believe you have ruling from HMRC on this point, it should be reviewed without delay.
Note that where the accommodation is necessary for the proper performance of the employee’s duties, such as where a boarding school house master lives in the same building as the school pupils, the customary test does not apply. The accommodation is free of tax as the employee is required to live there.
Written by the Tax Advice Network