Business Clinic: Can accommodation value contribute to NMW rate?
© Tim Scrivener Whether it’s a legal, tax, finance or management question, Farmers Weekly’s expert panel can help. Here, Kate Bell, a partner in Albert Goodman’s farms and estates team, advises on accommodation and the national minimum wage.
See also: Business Clinic: how should I respond to HMRC inquiry letter?
About the author
Kate Bell is a partner in accountant Albert Goodman’s farms and estates team.
She has a family farming background in agriculture and is a chartered accountant with more than 16 years’ experience, delivering significant tax savings for farming families through her specialist knowledge of agricultural income tax, capital gains tax, and inheritance tax reliefs.
Kate works closely with farming families of all sizes and sectors, helping them plan for the long term, including guiding families through succession.
Q: We have a couple of employees who are paid a salary and other harvest staff who are paid hourly. I find payroll such a minefield and I worry there is a lot I don’t know. Also, we have recently changed payroll software, and it is now flagging that some salaried employees are being paid less than the national minimum wage. I have ignored this because we provide them with a house worth £1,500 a month – how will HMRC view this?
A: Current national minimum wage (NMW) rates are £12.71/hour for workers aged 21 and over, £10.85/hour for those aged 18-20, and £8/hour for workers aged 16-17 and apprentices.
Many farming businesses assume that the value of accommodation will automatically ensure compliance. Unfortunately, NMW rules are highly technical, and employers can breach them unintentionally. Underpayments can lead to arrears, penalties and inclusion in the government’s “naming and shaming” list, which is published.
Farmworker accommodation
Accommodation is the only benefit that can count towards NMW. However, you cannot use the market value of the property. Instead, you must apply the statutory accommodation offset – currently £11.10 a day – regardless of the value of the property.
For accommodation provided free of charge, the offset can be added to normal salary or wages for NMW calculation purposes. If rent is charged, the rent is first deducted from pay before the offset is added back. The rules also apply where accommodation is owned by a connected person or company rather than the employer.
Payment by the employer of utilities such as electricity, heating and water do not increase the permitted offset. However, they can create a taxable benefit that needs to be reported correctly. From 2027, HMRC is phasing in the mandatory payrolling of benefits provided to employees starting with car fuel, vans and fuel as well as private healthcare. Other benefits such as utilities may follow from 2028.
Other employee costs
Another common trap is employee expenditure connected with the job. Where workers are required to buy items needed for work, the cost reduces their pay for NMW purposes. Examples include expecting employees to supply wellies or overalls, tools and safety equipment. Even small costs can cause a worker’s effective hourly rate to fall below NMW.
This may sound unreasonable but one recent example involved the restaurant chain Wagamama, where staff were required to wear black jeans or skirts with their uniform t-shirts. The cost of the jeans/skirts reduced their qualifying pay for NMW purposes.
Made a mistake?
If you realise that a worker has been underpaid, you should self-correct the position as soon as possible. You should review each current and past worker and each pay period separately for the past six years, comparing the hours actually worked, the pay that counts for NMW purposes, any deductions or worker expenditure that reduces qualifying pay and adding the accommodation offset, where appropriate. Then compare this hourly rate to the official minimum wage for that worker, remembering changes in age will affect the rate payable.
Any underpayment should be repaid through payroll as a self-correction of NMW rather than additional pay and this should be made clear to the employee. No matter when an underpayment occurred, it should be repaid at current NMW rates. As long as you correct any underpayments HMRC shouldn’t issue a notice of underpayment, which has an associated 200% penalty.
Seasonal working
One of the biggest risks for farming businesses is salaried employees working substantially longer hours during harvest, lambing or calving. For example, an employee earning £36,000 a year receives £3,000 a month. If they work 300 hours during a particularly busy month, and are not paid overtime, their effective hourly rate falls to £10/hour, which is lower than the current NMW rate.
Therefore, it is suggested that any additional hours worked are identified and paid appropriately.
HMRC reviews
HMRC is currently writing to employers either with a nudge letter to check PAYE records for any potential underpayments, or requiring a formal NMW self-review. These requests should never be ignored. Employers must review the relevant pay periods, calculate any arrears and submit the required information within the stated deadline.
NMW breaches are often caused by technical oversights rather than deliberate underpayment. Regular checks, particularly during busy periods, can help farming businesses identify issues before HMRC does.
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