Expenses and benefits: accommodation
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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, for example gardeners and cleaners
2. What's exempt
You do not 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, for example 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 will not be exempt if either:
- you’re a company or partnership
- you’d be providing the same sort of accommodation to an employee who was not 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 cannot do their work properly without it, for example agricultural workers living on farms
- an employer is usually expected to provide accommodation for people doing that type of work (for example 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 do not 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 is not exempt, you must report it to HM Revenue and Customs (HMRC).
Accommodation
This includes any accommodation you provide, even if the employee does not actually use it (see technical guidance for details).
You must:
- report on form P11D
- pay Class 1A National Insurance on the value of the benefit
You can get tax relief if you provide accommodation for an employee at their temporary workplace for up to 24 months. You’ll still need to report this.
If you provide accommodation because of coronavirus (COVID-19)
If you provide accommodation for an employee at their permanent workplace because of COVID-19, you must also report on form P11D.
If you’ve agreed to pay back your employee’s subsistence and lodging expenses because they cannot return home, you can either:
- report on form P11D
- report through a PAYE Settlement Agreement if you wish to pay tax and National Insurance contributions on your employee’s behalf
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, for example gardeners, cleaners
You do not need to report furniture, heating, lighting and maintenance costs if the accommodation is for a close relative and it is not related to their job.
Do not 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:
- report on form P11D
- pay Class 1A National Insurance on the full costs
4. Work out the value
To work out the value of living accommodation follow these steps:
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Use the greater of the ‘annual value’ (as shown in the table below) or the rent you pay.
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If you provide the accommodation only part of the year use that proportion.
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Deduct any rent you get from your employee.
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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’:
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Add anything you spent on improvements to the original buying price.
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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:
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Deduct £75,000 from the cost of the accommodation.
-
Multiply what’s left by the official rate of interest - if you only provide the accommodation for part of the year, use that proportion.
-
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)
Salary sacrifice arrangements
If the cost of the accommodation is less than the amount of salary given up, report the salary amount instead.
Calculate the cost of the accommodation in the same way as normal, but do not deduct any rent or payment you get from the employee.
These rules do not apply to arrangements made before 6 April 2017 - check when the rules will change.
5. Technical guidance
The following guides contain more detailed information about: