There will be a benefit in kind charge where an employee or director is provided with living accommodation by their employer for either no cost or a cost less than the open market value.
Employers and tax practitioners should also note that a charge can also be raised in instances where accommodation is provided to an employee, by virtue of their employment and that this accommodation does not necessarily have to be above or adjacent to the business premises.
How do I calculate the benefit in kind charge?
The benefit in kind value is calculated differently depending on whether the employer owns the property or is renting the property that is made available.
Where the property is owned by the employer the benefit in kind value is the open market rental value of the property plus any rates or insurance paid, less any contribution made by the employee.
Where the accommodation provided is a property which is rented by the employer the benefit value is the higher of the rent actually paid or the open market value plus any rates and insurance paid, less any contribution made by the employee.
If an agricultural worker, who is paid under the Agricultural Wages Act, receives accommodation from their employer, then the cash equivalent of the dwelling is determined by reference to values agreed by the Agricultural Wages Board.
See Agricultural Wages Regulations for the cash equivalents for the supply of a dwelling.
Payment of Utility Bills
Payment by the employer of any utility bills connected with the provision of accommodation to an employee is a chargeable benefit and should be reported separately on form T9 under the Services, Assets available and Pecuniary Liabilities section.
Utility bills include the cost of:
- garden maintenance
- domestic or other services
- repairs or decoration (but not structural alterations to the building).
Directors and their dependants
A director, who owns a property through a holding company and allows their dependants to live in this family residence, may elect not to complete a T9 form for the provision of their living accommodation.
In this instance, they cannot however claim any expenses relating to the private accommodation within their accounts.
The Division would class dependants in this case as being partner and child. Relatives such as cousins etc. should still continue to suffer a benefit in kind charge for accommodation provided.
Employers and tax practitioners should also bear in mind that where the accommodation is separate to the family home e.g. accommodation separate to the family home such as a flat above their family shop business, benefit in kind charges may also be due.
Job related accommodation
There is no specific exemption for job related accomodation unless an employee uses the accomodation solely for performing the duties of employment. This means that an employee is not charged a benefit in kind for the accomodation, heating, lighting etc provided during their normal working hours. However, if an employee or director decided to sleep over in their work premises, then a benefit in kind charge would be due. The following occupations often provide job related accomodation but the accomodation is not used solely for the performance of duties and as such should be charged to a benefit in kind in the normal manner;
- stud managers
- live-in carers
- au pairs
- wardens of care homes
Employee contributions towards the cost of accommodation
If an employee is required to pay a contribution towards the cost of the accommodation, this should be entered on the Benefit in Kind form T9 in the “Paid by Employee” column. This will then be deducted from the full benefit in kind value to establish a taxable amount.
Employers should clearly record the monies received within the gross profits of their business accounts, so that the Division can confirm whether the contributions have actually been received.
If the employer deducts the contribution towards the accommodation directly from the employee’s salary, then when calculating the employee’s remuneration, I.T.I.P. and National Insurance deductions, no deduction of the rent paid should be made from the employee’s gross salary. The employer should deduct the contribution from the employee’s net pay after deductions of I.T.I.P. and National Insurance. The payslip issued to the employee should reflect this position.
In no circumstance should the deduction for the contribution by the employee be made from gross pay prior to any required deductions of I.T.I.P. or National Insurance.
Failure by the employer to deduct the correct amount of I.T.I.P. will render the employer liable for the tax that should have been deducted and will result in the issue of a £250 penalty for non compliance.
The T9 form should reflect the gross value of the benefit, less the contribution made by the employee, resulting in the net value being charged as a benefit in kind. Failure to submit the form T9 with the employer annual return will result in a £250 late return penalty and an additional charge of £50 per day for each day that the complete return remains outstanding.