In this section:

  • Expenses and benefits A to Z

Living accommodation

This guide explains your tax and National Insurance contributions (NICs) obligations if you provide living accommodation to an employee.

On this page:

Accommodation you can provide free of tax and NICs

Definitions or restrictions

If any of the following conditions apply to accommodation you provide to an employee, then you don't have to report the benefit or pay tax or NICs on it:

  • the living accommodation is provided because of a domestic or personal relationship rather than an employment one - for example, if your son or daughter works for your business
  • the accommodation is provided by a local authority on the same terms that housing is provided to non-employees
  • it's necessary for the employee to live there to be able to do their work properly - for example, agricultural workers living on farms and full-time caretakers who are on call outside normal working hours
  • it's customary to provide accommodation so the employee can do their work better - for example, ministers of religion, members of the armed forces and pub managers living on the premises
  • there's a special threat to the employee's security and they have to live in the provided accommodation as part of arrangements for their personal security

The 'necessary' and 'customary' exemptions only apply to company directors if they control no more than 5 per cent of the shares in the company and if they either work:

  • full-time for the company
  • for a non-profit making company or a charity

If you provide accommodation that falls into one of the categories above, you may also be able to cover certain related costs without having to pay tax or NICs. See the sections 'Council Tax, water or sewerage charges ' and 'Other costs including furniture heating, lighting, maintenance'.

What to report, what to pay

You have:

  • no reporting requirements
  • no tax or NICs to pay

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All other living accommodation

Definitions or restrictions

You provide an employee with accommodation that isn't covered by the exemptions explained in the previous section.

In order for accommodation to have been 'provided' for tax and NICs purposes, it may be enough for you to have made it available to an employee - even if the employee doesn't actually use it. For more detailed guidance on this point, see the relevant links in the 'Technical guidance' section.

What to report, what to pay

For employees earning at a rate of less than £8,500 per year:

  • report on form P9D
  • you have no tax or NICs to pay

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D
  • pay Class 1A NICs on the value of the benefit

Work out the value to use

Follow the link below to find out how to work out the value to report.

Living accommodation - work out the value to report

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Council Tax, water and sewerage charges

Definitions or restrictions

You pay the Council Tax or water or sewerage charges relating to a property that you've provided to an employee.

What to report, what to pay - exempt accommodation

If any of the exemptions outlined in the section 'Accommodation you can provide free of tax and NICs' apply, then you have:

  • no reporting requirements
  • no tax or NICs to pay

What to report, what to pay - non-exempt accommodation

If none of the exemptions outlined in the section 'Accommodation you can provide free of tax and NICs' applies, then the tax, NICs and reporting requirements differ depending on how you cover the costs.

If your employee meets the costs and you reimburse them:

  • add the value of the benefit to the employee's other earnings
  • deduct and pay PAYE tax and Class 1 NICs using your usual payroll procedures

If you pay the council or utility company directly:

  • for company directors or employees earning at a rate of £8,500 or more per year report on form P11D
  • for employees earning less than a rate of £8,500 a year report on form P9D
  • for all employees, regardless of earnings, add the value of the benefit to the employee's earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

Work out the value to use

The value to use is the amount you pay or reimburse.

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Other costs including furniture, heating, lighting, maintenance

Definitions or restrictions

The costs covered here are:

  • heating, lighting or cleaning the accommodation
  • repair, maintenance or decoration of the accommodation
  • furniture for normal domestic occupation
  • domestic staff, gardeners, etc

What to report, what to pay

If your employee meets the costs and you reimburse them:

  • add the value of the benefit to the employee's other earnings
  • deduct and pay PAYE tax and Class 1 NICs using your usual payroll procedures

If your employee arranges the contracts for the goods or services, but you pay the supplier directly:

  • for employees earning less than a rate of £8,500 a year report on form P9D
  • for company directors or employees earning at a rate of £8,500 or more per year report on form P11D
  • for all employees, regardless of earnings, add the value of the benefit to the employee's earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

If you arrange the contracts for the goods and services and pay the supplier for them:

  • for employees earning less than the £8,500 rate there are no reporting requirements and you have no tax or NICs to pay
  • for company directors or employees earning at a rate of £8,500 or more per year report on form P11D
  • for company directors or employees earning at a rate of £8,500 or more per year pay Class 1A NICs on the value of the benefit

Work out the value to use - non-exempt accommodation

If none of the exemptions outlined in the section 'Accommodation you can provide free of tax and NICs' applies, the value to use is the full cost to you of the heating, lighting, etc.

Work out the value to use - exempt accommodation

If any of the exemptions outlined in the section 'Accommodation you can provide free of tax and NICs' apply, then there is a partial tax and NICs exemption for these other costs. The reportable value is limited to 10 per cent of the employee's net earnings, minus any contribution they make to the costs.

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Where to report - understanding the £8,500 threshold

It's important to choose correctly between forms P11D and P9D for each employee. The form to use depends on the whether the employee is a director of your company and on whether their earnings are above or below an annual rate of £8,500. For more information - including details of what's included in the £8,500 threshold - follow the link below.

Completing forms P9D, P11D and P11D(b)

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Technical guidance

EIM21720: heating, lighting, cleaning, etc

EIM11405: the meaning of 'provided'

EIM11501 - Living accommodation: part of premises used for business purposes: overview

EIM11331: Living accommodation - description of exemptions

EIM11432: Living accommodation - definition of annual value

EIM11411: Living accommodation - provided to more than one employee

EIM11473: Living accommodation - cost basis or market value basis

EIM11477: Living accommodation - meaning of market value

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