Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What happens if you provide accommodation for your employees?
If you’re an employer and you provide accommodation for your employees, there are certain things you need to know tax-wise to make sure you get it right for HMRC. As a result of providing this accommodation, you may have to pay additional tax and National Insurance as well as make sure you report the accommodation expenses correctly to HMRC.
As well as the cost of the actual accommodation itself, this benefit also includes paying Council Tax as well as water and sewerage costs and the costs for heating, lighting and cleaning. This also includes repairs, decoration and maintenance, as well as providing the furniture in the accommodation. If there is a need to employ staff to take care of the upkeep of the accommodation, such as cleaners or gardeners, this is also included in this benefit.
Are there any exemptions to this?
Yes, there are a few instances in which you wouldn’t have to report or pay anything to HMRC.
If it is domestic or personal accommodation, it is classed as exempt for HMRC purposes if you are an employer who is trading as an individual (such as a sole trader) and if you are providing it for someone who is a close relative even if they are also an employee of yours – if you are providing it because they are a relative, not because they are your employee. However, if your business is a company or a partnership, the accommodation isn’t exempt and nor is it if you would be providing the same kind of accommodation to an employee who wasn’t a family member.
If the accommodation is provided by a local council, it is exempt as long as it’s provided on the same terms as it provides housing to non-employees.
If it is necessary to the job and is provided as part of the job, it is exempt if the employee wouldn’t be able to do their job properly without the accommodation (such as agricultural workers who live on the farms they work on) or if the employer is usually expected to provide accommodation for employees doing that kind of job (pub managers for example, or vicars). If you are providing accommodation for company directors, there are certain rules that apply for the accommodation to be exempt – they need to be either full-time company directors or work for a non-profit or charitable organisation and hold less than 5% of the shares in the company.
If the accommodation is required for the safety and security of the employee, it is exempt – for example, if the job they do means that there is an expected threat to their security.
If the accommodation is classed as exempt, so are the Council Tax and water and sewerage costs so these don’t need to be reported to HMRC either, nor do you have to pay tax or National Insurance on them.
What do you need to report and pay?
If the accommodation you provide isn’t classed as exempt, you need to report it to HMRC and pay the appropriate tax and National Insurance on it. This includes any accommodation you provide even if the employee doesn’t actually use it. You have to report it on your P11D form and pay Class 1A National Insurance on the value of the benefit.
If your employees cover the cost of their Council Tax and water and sewerage costs and you reimburse them, you need to add the amount you reimburse to their earnings and deduct and pay the Class 1 National Insurance and PAYE tax through payroll just as you would for their earnings. If you cover the costs yourself, instead of reimbursing the employee, you need to report it to HMRC on your P11D form and deduct Class 1A National Insurance, though you won’t deduct and pay any PAYE tax.
There are special rules surrounding the provision of furniture, heating, lighting and maintenance, including paying for staff for the upkeep of the accommodation (such as cleaners or gardeners). If you are providing the accommodation for a close relative and it isn’t related to their job, you don’t need to report these costs. Nor do you deduct any costs for structural alterations or repairs that you are legally required to make as landlord of the property. If your employees cover these costs and are reimbursed by you, you need to add the amount you reimburse to their earnings and deduct and pay the Class 1 National Insurance and PAYE tax through payroll just as you would for their earnings. If you cover the costs yourself, instead of reimbursing the employee, you need to report it to HMRC on your P11D form and deduct Class 1A National Insurance, though you won’t deduct and pay any PAYE tax. If you arrange the supplier contracts and cover those costs directly yourself, you must report it on the P11D form and pay Class 1 National Insurance on the full cost to yourself.
How do you work out the value?
HMRC expect you to use the following annual values (depending on the country where the property is located):
|England and Wales||1973 gross rating value|
|Northern Ireland||1976 gross rating value|
|Scotland||1985 gross rating value divided by 2.7|
|Outside the UK||Annual rental value on the open market|
To work out the value of the accommodation you are providing for your employee, you need to follow these steps:
- Use either the annual value (as shown above in the table) or the rent you actually pay – whichever is the greater
- Work out the proportion of that if you only provide the accommodation for part of the year
- Deduct any rent you receive from your employee
- If the accommodation is shared or only partly used for business purposes, again work out the proportion.
HMRC provide a P11D working sheet if you need any help working out what the cash equivalent of the accommodation benefits would be.
If the accommodation is over £75,000 then you need to add an additional charge to the standard value. To begin, you need to work out the ‘cost of the accommodation’ by adding on anything you have spent in improving the property to the original buying price and then deduct any reimbursements you have received from your employee for these costs. If you already held an interest in the property (meaning that you already owned it or some part of it) for 6 years before the employee used it and they first occupied it after March 1983, you need to use the value of the property at the time your employee moved in rather than the original buying price. You then need to calculate that extra charge by deducting £75,000 from the cost of the accommodation and then multiplying the remainder by the official rate of interest (pro rata this if the accommodation isn’t used for the whole year) and finally deduct any rent you receive from your employee.
If you and your employee have a salary sacrifice arrangement and the cost of the accommodation is less than the amount of salary given up by the employee, report the salary amount instead. You still need to calculate the accommodation costs in the same way but don’t deduct ant rent from the employee. However, these rules don’t apply to arrangements made before 6th April 2017.
How can DSR Tax Claims help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.