What complex tax issues do schools and colleges need to consider if they provide
living accommodation to some members of staff*.
Provision of living accommodation
If you are providing employees with
accommodation then the first issue to determine
is whether or not this is the “provision of
living accommodation” as defined by the
legislation, or something else. It is not always as
straightforward as it may appear.
You will not be providing living accommodation
if the employee:
- Rents the property from a third party and you
reimburse the employee or pay the landlord
- Lives in a hotel or bed & breakfast
In these circumstances the employee would
either be taxed on the amount as additional
earnings under PAYE, or the amount would be
included on their P11d.
But you will if:
- You own or rent the property directly from the
landlord for the benefit of your employee.
What exemptions apply where we do provide
It is often claimed that accommodation is
job-related and therefore not taxable on the
employee. However, many of these claims do
not meet the criteria set by HMRC and taxable
earnings/benefits could go unreported. This can
result in the failure to pay the correct amount of
employer NIC, completion of inaccurate forms
P11d with the risk of penalties and employees
underpaying income tax on benefits.
There are exemptions available and these
are broadly broken down in to four areas;
representative occupiers, proper performance,
better performance and security risks**.
This was introduced as a temporary measure
when the current accommodation benefit rules
were introduced back in 1977. It is not referred
to in current legislation but still applies in some
A representative occupier must have been
required to live in a property provided by the
employer back in 1977. It can still apply today
but only if the employee occupying the property
either did so in 1977 or that the post/role still
applies even though it is now filled by another
The exemption is available where the employee
can only perform the duties of their employment
by living in that property. Examples include
agricultural workers, lock-gate and level-crossing
gate keepers, caretakers living on premises, stewards and green keepers etc.
It is possible that a number of caretakers may
have been exempt on this basis in the past.
However changes in employment law and
practice has meant that many caretakers are
no longer required to be on call outside of
core working hours. HMRC will not therefore
automatically accept that a caretaker qualifies
for the exemption. This has applied for tax years
This exemption is available where the
employee can better perform the duties of their
employment by living in the accommodation
provided and it is customary for an employee
engaged in this role to be provided with living
accommodation. It is important to note that this
exemption requires two tests to be met – “better
performance” and “customary”.
HMRC will usually consider the customary test
first. This is not about the actual employer but
more about the type of employment undertaken
by the employee. HMRC must be satisfied that
it is customary for all employees engaged in
that role throughout the UK to be provided with
living accommodation. It is up to the employer
to prove this rather than for HMRC to disprove
The better performance test is not as strong
as proper performance but it does require the
employer to be satisfied that the employee
can “better” perform his duties by living in that
property and not by other means.
There are a number of examples that HMRC
accept meet these two conditions including
police officers, prison governors, clergymen,
managers of newsagents that have paper
rounds, managers of public houses that live on
the premises. They also accept the following in
relation to boarding schools - head teachers,
other teachers with pastoral or other irregular
contractual responsibilities outside of normal
school hours, bursar, matron, nurse and doctor.
*This article does not take account of any provision/support for housing
under the Key Worker Living programme aimed at helping certain public
service workers in London and the South East.
**Security risks are not covered.