COMPLIANCE
So, where does that leave us? It seems that a review of living accommodation benefit rules is not a priority for HMRC and HM Treasury at present. We will need to keep an eye out for further changes in future but for now, ensuring employers comply with the current rules is key, however outdated they may seem. The relevant HMRC guidance covering So, you might be fooled into thinking nothing has changed in relation to living accommodation benefits since then, but you would be wrong
as part of special security arrangements (Section 100 of the ITEPA 2003 – EIM11361 onwards). The sort of person who may qualify for the exemption under this heading is an employee under a genuine terrorist threat to his or her life, and as it is rarely applicable, we have not made further comments on this below. Proper performance of employee’s duties – Section 99 (1) ITEPA 2003 In HMRC’s view (EIM11341), this test is only satisfied where the employer can demonstrate that the occupation of a particular property is essential to the proper performance of the duties of employment. This is reaffirmed by Langley and Others v Appleby (53TC1), in which Fox J said, “if it is asserted that it is essential for the servant to occupy the house in order to perform his duties it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other”. Note that the words ‘that house and no other’ above emphasise the strict nature of the test. For the exemption to apply, it must be claimed that it’s necessary to occupy a particular residence because the employer requires the employee to live there. However, it’s understood that this alone is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence. Better performance of the employee’s duties and where it is customary for the employer to provide accommodation – Section 99 (2) ITEPA 2003 Living accommodation provided to an employee will be exempt under Section 99(2) where a two-fold test is met: 1. the living accommodation is for the better performance of the duties (i.e., ‘the better performance test’) and 2. the employment is one in which it is customary for the employer to provide living accommodation (i.e., ‘the customary test’). To satisfy the test at 1.) above, we understand that HMRC insists the accommodation must be provided to the employee to provide speedy access to the workplace, and the employee must be on call outside normal working hours and be called upon frequently (EIM11349 and EIM11350). HMRC views the test as an objective one. It states: “The test is not satisfied merely because the
accommodation is provided close to the place of employment so that the employee can get to work more easily, the duties of the employment do not normally begin until the employee arrives at the place of work, the distance the employee has to travel does not therefore affect the performance of those duties. Consequently, it is necessary to look at the duties, if any, that are performed outside the employee’s normal hours of attendance at a place of employment.” In our experience, HMRC generally expects the employee to have the duties covered in the contract of employment, and for call-outs and extra duties performed outside normal hours to be undertaken. The customary test at 2.) above requires that the accommodation should be provided for virtually all employees in that type of employment. ‘Customary’ is not defined in the legislation, and therefore it’s taken to have its ordinary everyday meaning. In practice, something will be considered ‘customary’ if it’s recognisable as a normal practice, and failure to observe it would be exceptional. Consequently, we understand that it’s not enough to show that a custom exists in a particular employment with a particular employer; instead it must be shown that it’s customary for accommodation to be provided in that kind of employment generally. HMRC provided a reminder on this in the December 2018 issue of HMRC’s Employer Bulletin . Additionally, HMRC indicated that, from 6 April 2019, it no longer accepted that the customary exemption was available for employees within the higher and further education sector. While this is a general statement, clearly it means that to claim under this exemption, HMRC is now expecting employers to demonstrate the criteria has been met. Demonstrating something is customary is hard without supporting evidence; HMRC guidance confirms its view following case law Vertigan v Brady 60 TC 264, that there is no ‘custom’ where less than half of the employees in a particular kind of employment are provided with living accommodation. Therefore, an employer using the exemption is likely to face an uphill struggle in demonstrating that it applies, especially where they don’t have adequate records of the duties undertaken to demonstrate better performance, and the occupation is not on the HMRC list of those it expects will potentially be able to meet the requirements.
the rules can be found within their Employment Income Manual from EIM11300 onwards.
What statutory exemptions are there for living accommodation? The current statutory tax exemptions will continue to apply, at least for the time being, and cover situations where: l the provision of accommodation is necessary for the proper performance of the employee’s duties (Section 99(1) ITEPA 2003 – EIM11341 onwards) l the accommodation is provided for the better performance of the duties of the employment, and the employment is one where it’s customary for employers to provide living accommodation for employees (Section 99(2) of the ITEPA 2003 – EIM11346 onwards) l there’s a special threat to security and the employee resides in the accommodation It seems that a review of living accommodation benefit rules is not a priority for HM Revenue and Customs and HM Treasury at present
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| Professional in Payroll, Pensions and Reward |
Issue 85 | November 2022
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