Irwin Mitchell | Focus on Education | Tax considerations for educational establishments providing living accommodation

Tax considerations for educational establishments providing living accommodation

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 direct or
  • Lives in a hotel or bed & breakfast accommodation.

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 living accommodation?

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**.

Representative Occupiers

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 limited circumstances.

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 employee.

Proper Performance

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 2010/11 onwards.

Better Performance

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 this test.

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. Spring