In general providing living accommodation to employees is treated as a taxable benefit in kind with the benefit value based on the cash equivalent.
The main occupations which satisfy the rules for exemption are:
• agricultural workers living on farms or agricultural estates
• lock-gate and level crossing gatekeepers
•caretakers who live on the premises for which they are responsible where
they are on call outside normal working hours
•stewards and greenkeepers who live on the premises they look after
•managers of public houses who live on the premises
•wardens of sheltered housing who live on the premises where they are on
call outside normal working hours
•police officers and Ministry of Defence police
•prison governors, officers and chaplains
•clergymen and ministers of religion, unless engaged on administrative
•members of HM Forces
•members of the Diplomatic Service
•managers of newspaper shops that have paper rounds
•managers of traditional off-licences, that is, those with opening hours
equivalent to a public house
•in boarding schools where staff are provided with accommodation on
or near the school premises – the head teacher, other teachers with pastoral
or other irregular contractual responsibilities outside normal school hours
(for example, housemaster), bursar, matron, nurse and doctor
•veterinary surgeons who live close to the practice in order to respond
regularly to emergency calls
•managers of camping and caravan sites living on, or near to, the premises
•stable staff of racehorse trainers, who live on the premises and certain key
workers who live close to the stables.
Basically the test is based on ‘necessary’ and ‘customary’ https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim11300
The test is only satisfied where the employee can demonstrate that occupation of the particular property (as opposed to any other property) is essential to the proper performance of the duties of the employment.
Support for this view can be derived from Langley and Others v Appleby (53TC1), in which Fox J said at page 21
if it is asserted that it is essential for the servant to occupy the house in order to perform his duties, it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other.
The words “that house and no other emphasise the strict nature of the test.
An employee may claim that it is necessary to occupy a particular residence because the employer requires the employee to live there. This is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence. An argument that the employee cannot afford to live elsewhere is not sufficient, see Vertigan v Brady (60TC624).
Rent Allowances and Deductions
It is common for an employee to:
- own the property he lives in, or
- rent the property from a third party, not his employer.
In both cases the employer may pay the employee extra salary or a rent allowance to help with the accommodation costs. This extra salary or rent allowance will count as earnings under Section 62 ITEPA 2003
An employer may own or rent accommodation and provide it to an employee. If the employee is entitled to a fixed wage or salary from which sums are deducted by the employer in respect of the accommodation then the fixed wage or salary is earnings under Section 62 ITEPA 2003. No deduction is allowed from earnings for the deductions made by the employer. See Cordy v Gordon (9TC304) and Machon v McLoughlin (11TC83)