Living accomodation Flashcards
LA does not have to be reported if accommodation provided; all other types will incur a taxable benefit
-necessary to carry out work properly eg. farm workers
-customary to carry out work better eg. ministers, pub managers
-as part of personal security arrangements
-personal
Taxable annual benefit - Rental property
Higher of annual value (rateable value) and rent paid by employer
Taxable annual benefit - when employer owns property -1
1.The annual value (rateable value)
2. The additional charge-
if property valued more than£75,000. deduct £75,000 from the property value and multiply by the official interest rate (currently 2.25%).
3. Deduct any rent paid by the employee.
Eg. PROPERTY VALUE (see next slide) is £165,000 - an employee to live
in for the whole year - rateable value is £1,500 - employee pays £1,000 as rent.
- Standard reportable value of the accommodation is £1,500.
2.The additional reportable value is £165,000 - £75,000 = £90,000
£90,000 x 2.25% = £2025
The total reportable value is £1,800 + £1,500 (the rateable value). less the rent paid.
2025 + £1,500 - £1,000 = 2525
The value of the benefit is reduced if it is used for only part of the year. This should be done
on a daily basis, but for AAT assessment purposes you can use whole months.
The value of the benefit will also be reduced if more than one employee shares the property
or if part of the property is used for business.
Taxable annual benefit - when employer owns property -2
Value of the property
The value of the property = price paid by employer + any capital expenditure incurred between date of purchase & start of the current year.
Any capital expenditure incurred within the tax year included in next year’s assessment
if the accommodation was acquired more than six years before it was provided to the employee the
additional charge will be based on the market value at the start of the year in which the employee moved in. Since the market value will be based on the current state of the property, no capital expenditure will be added to the value.
Any living expenses paid by the employer will be
added to the benefit. eg. Council Tax, heating, lighting, cleaning, repairs, maintenance and decoration.
The benefit value is usually the cost to the employer.
However, where the accommodation is job-related (and therefore there is no taxable benefit
for the accommodation) living expenses will be capped at 10% of the employee’s net earnings
(i.e. salary plus other benefits).
Furniture provided by the employer will also incur a taxable benefit. This applies even if the
accommodation itself is not a taxable benefit because it is job-related.
The benefit is calculated at 20% of the cost
Taxable annual benefit - when employer owns property -2
Value of the property - ex1
A house is first provided to an employee on 1st August 2021. On that date, the market value
of the house was £300,000. The house was purchased on 31st May 2016 for £220,000 and in
July 2016 a conservatory was added costing £10,000.
All the heating costs were paid for by the employer at a cost of £800 for the 8 months.
The annual value is £2,000, and the employee pays £100 per month in rent.
Step 1
The annual value is £2,000
Step 2
The market value is not used as the period from 31st May 2016 to 1st August 2021 is less than
6 years. Therefore, the purchase price is used plus the cost of the conservatory. The additional
charge is:
(£220,000 + £10,000 - £75,000) x 2.25% = £3487.5
The accommodation was available from 1st August so that is 8 months of the year.
Our total so far is (£2,000 + £3487.5) ÷ 12 x 8 = £3,658
Deduct the rent paid by the employee
£3,658 – (£100 x 8) = £2,858
Finally, we must add the living expenses – here it’s the heating
£2,858 + £800 = £3,658
The taxable benefit is £3,658
Taxable annual benefit - when employer owns property -2
Value of the property - ex2 - steps
Taxable benefit = annual value + additional value - rent + living expenses (for num of months stayed) + furniture expenses
-Additional value = Property value-75000)*2.25%
-(Annual value plus additional value)/12 *num of tax months stayed rounded down
-deduct rent paid for months stayed
-add living expenses
-add furniture expenses
Now let’s use the same scenario except that the house was bought on 31st May 2015.
Step 1
The annual value is £2,000
Step 2
The market value is used this time as the
period from 31st May 2015 to 1st August 2021
is more than 6 years. The cost of the
conservatory is not added because it was there
when the house was valued. The additional
charge is:
(£300,000 - £75,000) x 2.25% = £5062.50 The accommodation was available from 1st
August so that is 8 months of the year.
Our total so far is (£2,000 + £5062.50) ÷ 12 x 8 = £4,708 (rounded)
Step 3
Deduct the rent paid by the employee
£4,708 – (£100 x 8) = £3,908
Finally, we must add the living expenses – here it’s the heating
£3,908 + £800 = £4,708
The taxable benefit is £4,708
Taxable benefit on - Provision of other assets
Where an asset is given to an employee - taxable benefit is the market value of the asset AT THE TIME.
If an asset is provided for an employee’s private use but remains the property of the employer, there is a taxable benefit of 20% of the market value when first
PROVIDED.
If the asset is rented by the employer, rather than owned the assessable benefit is the higher
of
-20% of the market value when first provided
- the rental charge paid by the employer
The charge applies to EACH year the asset was used by the employee, but it will be TIME
apportioned if the asset is provided for only part of the year.
Where an asset is provided in this way and is subsequently bought by the employee a further
benefit may arise. It is based on the higher of
- the market value at the DATE OF TRANSFER
- the market value when first provided, less the taxable benefits already assessed
Let’s take an example.
An employee borrowed a high specification computer when its market value was £1,200. Two
years later the employee buys the computer paying just £200, when its market value was
£400.
The taxable benefit for each year that it was
owned by the employer would be
£1,200 x 20% = £240
The taxable benefit when it was purchased
would be the higher of:
- the market value at the date of transfer (£400)
- the market value when it was first provided less benefits already assessed.
(£1,200 - £240 - £240 = £720
The higher figure is £720.
Now we deduct what the employee paid
£720 - £200 = £520
Therefore £520 is the taxable benefit.
Vouchers and credit cards
the taxable benefit is the cost to the employer in providing the vouchers. The benefit may be
less than the face value of the voucher. For example, if the employer obtained a £50 voucher
for £45 the taxable benefit would be £45.
Where an employer provides an employee with a credit card, the expenditure will be a taxable
benefit unless:
x the expenditure is an allowable deduction
x the expenditure is on benefits that are assessed separately (for example fuel for the
company car)
Allowable deductions
The general rule is that expenses must be wholly, exclusively and necessarily in the
performance of duties.
WHOLLY means that the expenditure must be for something the duties COULDN’T be completed
without. The expense can’t simply be to make the job EASIER.
EXCLUSIVELY means that the expense must be for the SOLE purpose of the job.
Necessarily is given a very narrow view by HMRC. They say that it means that the expense
would be incurred by EVERY EMPLOYEE WHO DID THE JOB THE SAME.
Where the employer reimburses the expense, as long as it’s an allowable expense then the
reimbursement is not taxable and will not be included in the employee’s taxable income.
However, if the employer does not reimburse the employee, then the amount can be
deducted from taxable income.
