Beware of tax costs when providing living accommodation to staff

15 July 2021 / Insight posted in Article

Beware of tax costs when providing living accommodation to staff, as although commonplace for schools to do so, such provision gives rise to a taxable benefit unless an exemption applies.

Schools providing living accommodation to staff may have relied upon a historical non-statutory exemption from tax known as the ‘representative occupier concession’. HMRC have recently withdrawn this concession with effect from 6 April 2021, resulting in many schools reviewing the provision of accommodation to staff to ensure that it is covered by other statutory exemptions, or if a tax charge and reporting requirement now arises.

What is the representative occupier exemption and why has it been withdrawn?

The exemption was a practical measure introduced when the current living accommodation legislation started from 6 April 1977 and provided an exemption to tax for employees who were provided with living accommodation for the better and more effectual performance of their duties. It was available to employees who were ‘representative occupiers’ of employer-provided accommodation up to 5 April 1977 (and employees who succeed to a particular post regarded as carrying representative occupier status).

HMRC specifically define a representative occupier as an employee:

  • who resides in a property provided rent-free by the employer;
  • who, under the terms of the contract of employment, is required to reside in that particular house and is not allowed to reside anywhere else; and
  • whose occupation of the house is for the purpose of the employer, the nature of the employment being such that the employee is reasonably required to reside in it for the better and more effectual performance of their duties.

Following a public call for evidence, HMRC concluded that the concession would be withdrawn on the grounds that legislating the concession would “enshrine unfair practices” and it is “not compatible with HMRC’s powers of collection and management”.

Tax exemptions that schools could apply for to avoid tax costs when providing living accommodation to staff

Schools continuing to provide living accommodation to staff can look to other tax exemptions potentially available. These are as follows:

  1. Proper performance of duties – this exemption applies where it can be demonstrated that the accommodation provided by the school is essential to the proper performance of the duties of employment.
  2. Customary and better performance of duties – this exemption applies if the accommodation provided is for the better performance of duties of the employment, and it is customary for such accommodation to be provided to employees for that particular type of employment.

Care needs to be taken to ensure that the above exemptions apply and that the strict conditions and eligibility tests are satisfied.

For example, schools not providing boarding facilities for pupils may find it difficult to argue that the living accommodation is provided for the proper performance of duties. Furthermore, HMRC have previously confirmed that they do not accept that the ‘customary’ exemption is appropriate to accommodation provided by employers within certain roles in the education sector.

If the relevant tax exemption is not applied, the school becomes fully taxable on the employee and the school will incur a national insurance cost at 13.8% on the benefit value. The calculation of the taxable benefit will vary depending on a number of factors, including when the accommodation was purchased, value of the property, whether it is rented, any employee contribution towards costs of the accommodation etc.

What do schools need to do?

Schools that have relied upon the representative occupier concession for the provision of staff accommodation, or apply the statutory exemptions detailed above, must review the provision of accommodation to help ascertain any increased tax costs for the school and its staff. This could include:

1. A check to ensure that the conditions for the representative occupier concession were met if the concession was relied upon in the period up to 5 April 2021. While the withdrawal of the concession does not apply retrospectively, there could still be a historical tax risk to schools if the strict conditions were not met.

2. A review of existing accommodation provisions to determine whether tax exemptions still apply. This should include reviewing actual duties performed by employees who are provided accommodation by the school.

3. Where exemptions no longer apply, changes to employee compensation arrangements should be made, and consideration of the tax and social security costs where the school continue to provide the benefit should be taken.

4. Communication with employees on the impact of the changes.


John Williams, Senior Tax Manager, Moore Kingston Smith