What price accommodation?
The huge increase in house prices in recent years has led some employers to provide free accommodation for directors and employees.
But employers should remember that there is a special tax charge when they provide living accommodation for a director, employee, or a member of their household. Some accommodation is exempt from tax, where, for example:
Accommodation is usually provided for the better performance of an employee’s duties.
It is provided in line with customary practice.
The exemptions for better performance and for customary practice do not apply to directors, unless the company is non-profit making or is set up for charitable purposes only.
When accommodation costs less than £75,000, the tax charge is based on the gross rateable value of the property, or the actual rent paid by the employer, less any amounts contributed by the employee. When accommodation costs more than £75,000, there is an additional tax charge which is calculated as follows:
Lightyear Ltd buys a home for its director, Woody, who is a 40% taxpayer. The home costs £310,000 and the company spends a further £90,000 on improvements. The official rate of interest is 4.75%, the annual rateable value is £1,200. Woody contributes nothing toward the cost.
He is taxed on a benefit of:
| Basic charge: annual rateable value | £1,200 |
| Additional tax charge: | |
| Cost and improvements | £400,000 |
| Less: | £75,000 |
| £325,000 x 4.75 = £15,437 | |
| Benefit | £16,637 |
| Less: contribution | ---------- |
| Taxable benefit | £16,637 |
As a 40% taxpayer, the accommodation costs Woody £568 a month in tax and NICs.