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Living accommodation provided by employers — possible changes to the tax rules

Living accommodation provided by employers — possible changes to the tax rules

Where we are now

Where employers provide accommodation to employees, there are some quite complicated rules to decide what tax charge, if any, the employee suffers. The rules we have now date back to 1977, and even back then they didn’t make complete sense, but at least by now we’ve got used to them.

The Office for Tax Simplification wants to change the rules, to make them simpler and more logical. That sounds good, but the reality is that it means that a lot of employees who currently get free accommodation will start having to pay tax on it when they didn’t before.

It will possibly have a major impact on Oxford Colleges.

The current complicated rules

This is just a summary of them, because they are very complicated:

  • An employee’s accommodation can be tax-free if it’s customary for employees in that sort of job to get accommodation, and they can show that it helps the employee perform his duties. Deciding what is customary isn’t always simple, because it’s not necessarily clear what your sample of typical employees should be. For example, consider a Fellow of an Oxford college. Is the test that it is customary for Oxford Fellows to be provided with free accommodation? Or is the test that it is customary for Fellows of collegiate universities to get free accommodation? Or is it that it is customary for Fellows of any university to get free accommodation? Because the answer will probably be different depending on the test.If you’re in a job that existed in 1977, there are special rules that extend the previous benefit regime. But only if the role is the same as it was in 1977.
  • If you don’t get an exemption, there is a complicated calculation which involves the 1973 rateable value (even if the property you are living in didn’t exist in 1977!), as well as the cost of the property if it is owned — so two employees could be in apparently identical accommodation, but end up with different tax bills because the properties were acquired years apart and the costs were different.

What we expect the new rules will mean

  • Employees will pay tax on the rental value of accommodation provided to them. The rent charge may take into account the fact that it isn’t very accessible (eg if it is inside the centre of an Oxford College, that may make it seem less rentable — although that is by no means certainly the case).
  • There will be exemptions for certain staff who really need to have the accommodation provided for them to do their duties, eg caretakers or people who genuinely are on 24-hour callout. But these exceptions will not apply to most of the Fellows who currently get tax-free accommodation.
  • There may be a let-out for very basic accommodation, but anything that provides a room and some cooking facilities (even shared facilities) is likely to count as taxable accommodation.

When will the changes start?

We’re at consultation stage so far (click here to see their consultation document), but there is no reason to expect HMRC to want to give up their plans to change the rules, bearing in mind what a complicated mess the existing rules are. It’s possible the rules may be toned down — but it’s probably not safe to assume so.

We may see draft legislation as soon as the 2014 Autumn Statement. The changes could then kick in as soon as 2015/16, although there may be some transitional rules to ease the arrival of the new regime.

We will be monitoring the position and, will keep you informed of developments.

Find out more about Gerry Jackson

Gerry Jackson

Gerry Jackson

Gerry is a Chartered Tax Advisor and an ex-Inspector of Taxes.

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