Employers providing accommodation for their workers should review their arrangements if they want to avoid possible tax in the future.
HMRC is now considering a report that recommends tightening up the rules for exemptions on taxable benefits.
Currently accommodation is not taxable if it is either necessary for the employee’s job or has been granted because it is “customary”.
But the Office of Tax Simplication (OTS) has suggested changing the exemptions to focus more precisely on:
- Whether the worker has to live on-site to protect buildings, people or assets
- Whether they regularly have to work particularly long working hours
- Whether they need the accommodation because of regulatory requirements.
Jerry Barnes, partner and head of Land Estates at Smith & Williamson, said employers needed to review workers’ contracts to make sure job descriptions were accurate and clearly showed the need for accommodation.
He said that a successful challenge by HMRC would typically look six years back and could therefore lead to large tax and national insurance liabilities.
“In my view, it would be very risky to assume that because an individual has a job title such as ‘farmer’, ‘forester, ‘shepherd’ or ‘gamekeeper’ that they are entitled to have tax-free accommodation as part of their pay package,” Mr Barnes said.
“Unfortunately this attitude has been fairly widespread but it now needs to change.
“We are therefore urging all employers who provide live-in accommodation to review their arrangements.”
Mr Barnes said the need to live on-site was more obvious for stockmen and gamekeepers.
But jobs like farm manager or general worker would require more specific detail in the employment contract about why tied accommodation was essential for the role.
If the accommodation is taxable, the OTS has recommended working out the benefit’s value using the accommodation’s market rent.