UK tax

What is a benefit in kind?

There is a really useful A to Z list of benefits in kind on HMRC’s web site at https://www.gov.uk/expenses-and-benefits-a-to-z

For example, the first entry is for Accommodation and reads:

1. Overview

As an employer providing accommodation for your employees, you have certain tax, National Insurance and reporting obligations.

What’s included

As well as the costs of the accommodation itself, this includes:

  • Council Tax
  • water and sewerage charges
  • heating, lighting and cleaning
  • repair, maintenance and decoration
  • furniture for daily use
  • staff for upkeep of accommodation, eg gardeners and cleaners

2. What’s exempt

You don’t have to report or pay anything to HM Revenue and Customs (HMRC) on the cost of certain types of accommodation.

If it’s domestic or personal

Accommodation is exempt if both:

  • you’re an employer who’s an individual, eg a sole trader
  • you’re providing it for someone because they’re a close relative – even if they happen to work in your business

It won’t be exempt if either:

  • you’re a company or partnership
  • you’d be providing the same sort of accommodation to an employee who wasn’t a family member

If it’s provided by a local council

Accommodation is exempt if a local council provides it on the same terms that it provides housing to non-employees.

If it’s necessary or usually provided for the job

Accommodation at the place of work is exempt if:

  • your employees can’t do their work properly without it, eg agricultural workers living on farms
  • an employer is usually expected to provide accommodation for people doing that type of work (eg a manager living above a pub, or a vicar looking after a parish)

If you provide the accommodation to company directors, they have to be either full-time or work for a non-profit or charity organisation and hold less than 5% of the shares.

If it’s needed for security

If you need to provide accommodation to protect an employee because the type of work they do means there’s a special threat to their security, this is exempt.

Other charges and costs

If the accommodation you provide is exempt, you don’t have to report Council Tax, water and sewerage charges to HMRC, or pay National Insurance and tax.

3. What to report and pay

If the accommodation you provide isn’t exempt, you must report it to HM Revenue and Customs (HMRC). You may have to deduct and pay tax and National Insurance on the accommodation and any related costs, eg Council Tax or upkeep.

Accommodation

This includes any accommodation you provide, even if the employee doesn’t actually use it (see technical guidance for details).

You must:

Council Tax, water and sewerage charges

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance and PAYE tax through payroll

If you cover the costs directly, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

Furniture, heating, lighting, maintenance

This covers:

  • heating, lighting, cleaning
  • repair, maintenance, decoration
  • furniture for daily use
  • staff for upkeep, eg gardeners, cleaners

You don’t need to report furniture, heating, lighting and maintenance costs if the accommodation is for a close relative and it’s not related to their job.

Don’t deduct costs for any structural alterations or repairs that you legally have to make as a landlord.

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If your employee arranges the supplier contracts but you cover the costs, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If you arrange the supplier contracts and cover the costs directly, you must:

4. Work out the value

To work out the value of living accommodation follow these steps:

  1. Use the greater of the ‘annual value’ (as shown in the table below) or the rent you pay.
  2. If you provide the accommodation only part of the year use that proportion.
  3. Deduct any rent you get from your employee.
  4. If the accommodation is shared or only partly used for business use that proportion.

The annual value to use depends on where the property is.

Country Annual value
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

Use HMRC’s P11D working sheet if you need help working out the cash equivalent of accommodation benefits.

Properties over £75,000

You must add an additional charge to the standard value.

To start with you have to calculate the ‘cost of the accommodation’:

  1. Add anything you spent on improvements to the original buying price.
  2. Deduct any reimbursements by employees from these amounts.

If you held an interest in the property 6 years before your employee occupied it and they first occupied it after March 1983, use the value of the property at the time your employee moved in, rather than the original buying price.

To calculate the additional charge do the following:

  1. Deduct £75,000 from the cost of the accommodation.
  2. Multiply what’s left by the official rate of interest – if you only provide the accommodation for part of the year, use that proportion.
  3. Deduct any rent you get from the employee.

Example
Buying price: £175,000
Gross rating value: £1,000
Employee rent: £1,250
Interest rate: 4%

The standard reportable value is £0, because the rent is more than the annual rating value.

Additional charge is £3,750:
£175,000 – £75,000 = £100,000
£100,000 x 4% = £4,000
£4,000 – £250 (left over rent from standard value) = £3,750

Total value to report is £3,750:
Standard value (£0) + additional charge (£3,750)

There are also technical guidance notes…

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