Warning over farmworker housing benefit tax rule change

Farm business owners must review worker accommodation benefits ahead of tax rule changes that could land employees with bigger bills from 6 April, accountants have warned.

Previously, certain staff living in farm or estate accommodation under a condition of their employment qualified for relief from a taxable benefit in kind.

This concession relates to posts set up before 6 April 1977, and to successors to those posts. It is anyone in this bracket that will be affected by the rule change, according to Martyn Dobinson, partner at accountant Saffery Champness.

See also: Budget 2021: What’s in the detail for farm businesses

He suggested the change would affect a great many businesses that regularly provide tax-free accommodation to workers and retired employees.

After 6 April, living accommodation will become a taxable P11D benefit for staff.

The employee will pay income tax on the value of the benefit, at their marginal rate of income tax – 20%, 40% or 45% – depending on whether they are a basic-, higher- or additional-rate taxpayer.

Employers will also face extra costs because the benefit in kind will attract class 1A national insurance at 13.8%.  

What business owners need to do

Before 6 April, employers who provide tax-free accommodation will need to assess whether it will continue to qualify for relief under continuing statutory exemptions.

These exemptions relate to situations where the living accommodation provided is:

  • Necessary for the proper performance of duties
  • Customarily provided for the better performance of duties
  • Required for the personal security of the employee.

The term “customarily provided” means more than half of the workers in the same class of employment, or role, are provided with living accommodation, Mr Dobinson explained.   

However, Angela Ferguson, a director at the firm, warned exemption claims must be backed up by documented evidence of roles performed.

This must prove accommodation is needed for “proper or better performance of duties” – conditions written into employment contracts around security will not be sufficient, she said.

Instead, proof must come in the form of signed timesheets and call-out logs that demonstrate an employee has been needed on site, out of normal working hours.

Tasks performed like being on call for fire or intruder alarms will qualify and the hard evidence should be provided with the exemption claim, Ms Ferguson said.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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