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Company Provided Living Accommodation

When you provide living accommodation to an employee or director, this creates a taxable benefit in kind that must be reported through payroll. The tax charge depends on the property's value, how long it's been held, and whether the accommodation qualifies for one of the limited exemptions...

What counts as provided accommodation

You're providing living accommodation if your company or business supplies somewhere for an employee to live, whether you own or rent the property. This also applies if accommodation is provided for members of the employee's family or household.

The tax charge applies when accommodation is provided "by reason of employment" – essentially because of the person's job. There are two narrow exceptions: where you as an individual employer provide accommodation in the normal course of family or personal relationships, or where a local authority provides accommodation to an employee on the same terms it offers to non-employees in similar circumstances.

No tax charge arises when accommodation qualifies as "job-related" under one of three conditions:

Necessary for the job – it's necessary for the proper performance of the employee's duties that they reside in the accommodation (for example, a caretaker living on-site).

Customary for the role – the accommodation is provided for better performance of duties and it's customary for that type of employment to include accommodation (such as clergy living in a vicarage or farm workers in tied cottages).

Security threat – there's a special threat to the employee's security, special security arrangements are in force, and the employee lives in the accommodation as part of those arrangements.

When any of these exemptions apply, there's also no tax charge on any Council Tax, water charges or rates you reimburse or pay on the employee's behalf.

Special rules for company directors

If you're providing accommodation to a company director (including a director of an associated company), the first two exemptions above only apply if the director:

Has no "material interest" in the company (broadly, they don't control more than 5% of the ordinary share capital), and
Is a full-time working director, or the company is non-profit making or a charity

Calculating the basic accommodation benefit

The starting point for the tax charge is the annual value of the property. This is the rent the property would fetch if let on the open market, and for UK properties is based on historic rateable values:

England and Wales: 1973 gross rating value
Northern Ireland: 1976 gross rating value
Scotland: 1985 gross rating value divided by 2.7

For properties built after these dates (so not on the old rating lists), HMRC uses an estimated gross annual value.

The taxable benefit is the annual value (or the total rent you pay as landlord if higher), minus any rent the employee pays to you. For the employee's rent to reduce the benefit charge from the 2017/18 tax year onwards, they must pay it by 6 July following the tax year when they occupied the accommodation.

If accommodation is provided for less than a full tax year, the annual value is reduced proportionately.

The employee is also taxed on any "occupier's liabilities" you pay on their behalf – items the occupier would normally pay themselves.

The £75,000 threshold and expensive accommodation

When the cost of providing the accommodation exceeds £75,000, an additional tax charge applies on top of the basic annual value charge.

What counts as "cost"

The cost means the purchase price plus the cost of any improvements. The purchase price includes expenditure to acquire an estate or interest in the property – for example, a premium paid under a lease counts as part of the cost.

You deduct any reimbursements the employee makes to you and any sums they paid for the grant of a tenancy. For example, if property and improvements cost you £130,000 and the employee reimburses £10,000, the net cost for benefit purposes is £120,000.

When market value replaces cost

For properties costing more than £75,000, you may need to use market value instead of actual cost if:

The employee first occupied the accommodation on or after 31 March 1983, and
You (or someone connected with you) held an interest in the property throughout the 6 years before the employee's first occupation

In this case, you use the market value at the date of first occupation (plus the actual cost of subsequent improvements) instead of the original purchase cost. Market value means the price the property might reasonably fetch on the open market with vacant possession.

This market value remains the basis for calculating the benefit for as long as the employee continues living there, plus the cost of any later improvements.

The additional charge for expensive accommodation

When accommodation costs over £75,000, there's an additional tax charge calculated as:

(Cost or market value - £75,000) × official interest rate

This additional charge is added to the basic annual value benefit. The official interest rate is set by HMRC and changes periodically.

If the property is only occupied for part of the year, this additional charge is reduced proportionately.

Lease premiums

When you pay a lease premium rather than purchasing the property outright, special rules apply to spread the premium over the lease period for the purposes of calculating the taxable benefit.

Reporting and payroll obligations

Company-provided accommodation must be reported through payroll or on form P11D at the end of the tax year. The benefit is subject to Income Tax and Class 1A National Insurance contributions.

Employees cannot reduce the benefit charge by making good the value after the tax year ends (except for rent payments made by 6 July following the tax year, as mentioned above).

Sources

Company provided living accommodation (480: Chapter 21)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.

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