Employee accommodation

The Problem
Staff are often required to occupy accommodation provided by their employer, either in the premises at which they work or nearby. This is treated as a benefit in kind for tax and national insurance purposes.

The Law
The provision of accommodation is exempt from charge if it's necessary for the performance of the employee's duties that he occupy it, or it's customary in that type of employment to provide such accommodation.

Expert Advice
For the "customary" exemption to apply, the accommodation must be provided for the better performance of the duties of the employment. This shouldn't be difficult to show, as the management of a building and its occupants can clearly be carried out more efficiently by someone on the spot than from a distance.

Also, the employment must be one in which provision of accommodation is customary. "Employment" means a particular type of employment, in this case, the operation of a hotel. It's not sufficient that the provision of accommodation is customary for a particular hotel proprietor.

However, it's not the entire hotel industry that must be taken into account, but only that part which has comparable employees. The requirements of a five-star hotel in central London must be measured as far as possible against those of similarly placed hotels of a similar quality and not, for example, against those of a three-star hotel in the provinces. For the exception to apply, provision and occupation of the accommodation must be shown to be necessary for the proper performance of the employee's duties.

Increasing legal and compliance obligations in respect of occupiers' liability, fire regulations, health and safety, and the security of persons and property, must make it necessary in every hotel, whatever its size and quality, for at least one person to be on site or nearby at all times. The larger and more prestigious the hotel, and the more eminent and vulnerable its clientele, the more resident staff can be justified.

Check List
- It should be made clear in the contract of employment that occupation of specified accommodation is required, and that the duties of the employment are such as to render this essential (eg, the hotel's general manager).

- To establish custom, it must be shown how common such provision is, how long it has prevailed, and whether it's generally accepted within the industry. However, it's understood that representatives of the industry have accepted that this last requirement can't be met.

- To establish necessity, it must be shown that the employee is or may be regularly called out during the day and night. For example, the contents of the incident book, even where no action by resident staff is actually required, can be used to show that such staff are likely to be needed at any time in the case of an emergency, such as fire, interruption of essential services, theft or terrorist attack - actual or suspected - or simply to greet important guests who arrive at unseasonable hours, possibly at short notice.

Beware!
The value of accommodation provided, based on the valuation for council tax or, as the case may be, business rating purposes, is liable to income tax as the employee's earnings at a maximum of 40% and to class 1A national insurance contributions at a maximum of 12.8%. Noncompliance can mean substantial penalties and interest and, possibly, an inability to recover the tax from the employee.

Contact
David Harris
Prince Henry's Chambers
2 Tamar House, 12 Tavistock Place, London
Tel: 020 7713 0376
E-mail: david@harris6918.fsbusiness.co.uk