Where a farm or other rural business provides accommodation for its workers, it is important to be aware of the tax issues that can arise.
Historically, most staff accommodation qualified as a tax-free benefit-in-kind, but this is not always the case, and care needs to be taken to ensure the correct treatment is applied.
Requirements for accommodation to be tax-free
Accommodation can still be tax-free if occupation of the property is a requirement of the job and necessary for the proper performance of your staff’s duties.
Crucially, this requirement must be documented in their contract of employment. Typically this includes employees who need to see to livestock or provide security outside of normal working hours.
Previously, the Representative Occupier Concession, an extra-statutory tax exemption, exempted many farm and estate workers from having a taxable benefit in kind on their accommodation.
This allowed them to receive rent-free accommodation from their employers without paying tax or National Insurance.
The concession was easier to qualify for, as it only required the worker to perform their duties more effectively through living in the property.
However, it was abolished from April 6 2021, and it is now necessary to meet the stricter conditions explained above.
When tax applies to accommodation
If the accommodation is does not qualify for an exemption, it will give rise to an income tax charge on the employee, and a National Insurance liability for the employer.
The taxable benefit is generally based on the value of the accommodation provided and, in some cases, additional charges can arise where higher-value properties are involved.
Where a director of a farming company, or a shareholder owning more than 5% of the company shares, occupies a company-owned property, there will always be a taxable benefit-in-kind.
National Minimum Wage trap
Care also needs to be taken to ensure that the provision of accommodation does not leave your business in breach of National Minimum Wage (NMW) regulations.
The Government sets a maximum accommodation offset of £11.10 per day or £336 per month, regardless of the market rent of the property being provided.
- If the accommodation is provided rent-free, the offset of £11.10 per day can be added to the cash wage when checking whether NMW, currently £12.71 per hour for age 21 and over, has been paid.
- If the worker has rent deducted from their wages, only £11.10 can be taken into account in checking compliance with NMW has been paid.
Review arrangements regularly
In addition to accommodation, the provision of other benefits including a company vehicle or payment of household expenses, such as utility bills, are likely to result in a tax or National Insurance charge on both the business and the employee.
Employers should therefore consider the wider benefit package being provided, rather than focusing solely on the accommodation itself.
Given the complexity of the rules, businesses that provide accommodation to employees should review their arrangements regularly.
Ensuring that employment contracts accurately reflect the employee’s duties and that accommodation is provided for genuine business reasons can help avoid unexpected tax liabilities and ensure compliance with both employment and tax legislation.
