What is a benefit in kind?

There is a really useful A to Z list of benefits in kind on HMRC’s web site at https://www.gov.uk/expenses-and-benefits-a-to-z

For example, the first entry is for Accommodation and reads:

1. Overview

As an employer providing accommodation for your employees, you have certain tax, National Insurance and reporting obligations.

What’s included

As well as the costs of the accommodation itself, this includes:

  • Council Tax
  • water and sewerage charges
  • heating, lighting and cleaning
  • repair, maintenance and decoration
  • furniture for daily use
  • staff for upkeep of accommodation, eg gardeners and cleaners

2. What’s exempt

You don’t have to report or pay anything to HM Revenue and Customs (HMRC) on the cost of certain types of accommodation.

If it’s domestic or personal

Accommodation is exempt if both:

  • you’re an employer who’s an individual, eg a sole trader
  • you’re providing it for someone because they’re a close relative – even if they happen to work in your business

It won’t be exempt if either:

  • you’re a company or partnership
  • you’d be providing the same sort of accommodation to an employee who wasn’t a family member

If it’s provided by a local council

Accommodation is exempt if a local council provides it on the same terms that it provides housing to non-employees.

If it’s necessary or usually provided for the job

Accommodation at the place of work is exempt if:

  • your employees can’t do their work properly without it, eg agricultural workers living on farms
  • an employer is usually expected to provide accommodation for people doing that type of work (eg a manager living above a pub, or a vicar looking after a parish)

If you provide the accommodation to company directors, they have to be either full-time or work for a non-profit or charity organisation and hold less than 5% of the shares.

If it’s needed for security

If you need to provide accommodation to protect an employee because the type of work they do means there’s a special threat to their security, this is exempt.

Other charges and costs

If the accommodation you provide is exempt, you don’t have to report Council Tax, water and sewerage charges to HMRC, or pay National Insurance and tax.

3. What to report and pay

If the accommodation you provide isn’t exempt, you must report it to HM Revenue and Customs (HMRC). You may have to deduct and pay tax and National Insurance on the accommodation and any related costs, eg Council Tax or upkeep.


This includes any accommodation you provide, even if the employee doesn’t actually use it (see technical guidance for details).

You must:

Council Tax, water and sewerage charges

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance and PAYE tax through payroll

If you cover the costs directly, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

Furniture, heating, lighting, maintenance

This covers:

  • heating, lighting, cleaning
  • repair, maintenance, decoration
  • furniture for daily use
  • staff for upkeep, eg gardeners, cleaners

You don’t need to report furniture, heating, lighting and maintenance costs if the accommodation is for a close relative and it’s not related to their job.

Don’t deduct costs for any structural alterations or repairs that you legally have to make as a landlord.

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If your employee arranges the supplier contracts but you cover the costs, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If you arrange the supplier contracts and cover the costs directly, you must:

4. Work out the value

To work out the value of living accommodation follow these steps:

  1. Use the greater of the ‘annual value’ (as shown in the table below) or the rent you pay.
  2. If you provide the accommodation only part of the year use that proportion.
  3. Deduct any rent you get from your employee.
  4. If the accommodation is shared or only partly used for business use that proportion.

The annual value to use depends on where the property is.

Country Annual value
England and Wales 1973 gross rating value
Northern Ireland 1976 gross rating value
Scotland 1985 gross rating value divided by 2.7
Outside the UK Annual rental value on the open market

Use HMRC’s P11D working sheet if you need help working out the cash equivalent of accommodation benefits.

Properties over £75,000

You must add an additional charge to the standard value.

To start with you have to calculate the ‘cost of the accommodation’:

  1. Add anything you spent on improvements to the original buying price.
  2. Deduct any reimbursements by employees from these amounts.

If you held an interest in the property 6 years before your employee occupied it and they first occupied it after March 1983, use the value of the property at the time your employee moved in, rather than the original buying price.

To calculate the additional charge do the following:

  1. Deduct £75,000 from the cost of the accommodation.
  2. Multiply what’s left by the official rate of interest – if you only provide the accommodation for part of the year, use that proportion.
  3. Deduct any rent you get from the employee.

Buying price: £175,000
Gross rating value: £1,000
Employee rent: £1,250
Interest rate: 4%

The standard reportable value is £0, because the rent is more than the annual rating value.

Additional charge is £3,750:
£175,000 – £75,000 = £100,000
£100,000 x 4% = £4,000
£4,000 – £250 (left over rent from standard value) = £3,750

Total value to report is £3,750:
Standard value (£0) + additional charge (£3,750)

There are also technical guidance notes…

MTD – the way forward

It seems pretty clear that HMRC have set the commencement dates for implementation of their Making Tax Digital for Businesses program. They say:

“…self-employed people and landlords will be required to start using the new digital service from:

  • April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold
  • April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold
  • April 2019 for VAT purposes for everyone who is VAT registered
  • April 2020 for Corporation Tax (CT) purposes for everyone who pays CT

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.”

Like all major changes to tax compliance, MTDfB will demand attention – a steep learning curve – and the opportunity to devise and sell new services to clients. Many small businesses that I have spoken to in the past few months were completely ignorant of the changes. My guess is, most clients will want to leave the grunt work associated with MTD to their advisor,  the key is to ensure they appreciate the value of this extra work and don’t expect you to do it for pre-MTD fees.

I have written an MTD handbook, updated for recent changes, that sets out the MTD compliance framework and offers a few ideas for developing new services. I think there is plenty of scope to arrive at a win-win outcome.

Take a look.

In the introduction to the MTDfB handbook I say:

From April 2018, tax professionals will need to consider a number of far-reaching adjustments to their working practices. January 2019, could be the last time that small business clients can amble into our offices with their bag of bank statements and receipts for the previous tax year and expect that their filing and reporting obligations will be met before the 31st January deadline.

The reason for this is Making Tax Digital (MTD), which will probably come to be seen as one of the most radical changes to UK taxation practice since the advent of self-assessment (SA) in April 1996. Eventually, MTD will oust SA and will require taxpayers, and their agents, to change their approach to recording, storing, filing and uploading accounting data.

The ultimate aim of MTD, as the name implies, is to fully digitise the collection and reporting of tax-payers’ income and other tax-relevant information so that their liability to UK tax can be assessed and managed in real time. This is a formidable project, one that will stretch the resources of the UK’s small businesses, their advisors and HMRC. Digital accounting, already a flourishing industry, will be boosted by MTD. The developers at Xero and similar providers will be rubbing their hands together as all businesses, including buy-to-let landlords, will be required to submit quarterly accounting data by electronic upload to their tax account. The present timetable for full implementation starts April 2018 and is expected to be completed before the end of the current parliament’s term in 2020.

We have all suffered the January SA filing deadline for many years, but imagine that filing pressure multiplied by four! For example, HMRC intends to require clients with a 31 March (5 April) accounting year’s end date to upload accounts data for each quarter end date: 31 March, 30 June, 30 September and 31 December. The proposal is to give taxpayers a month to send the data. Accordingly, April, July, October and January will require practices who complete this upload for clients (with March year’s ends), to have additional resources on call every three months.

The stated objective of MTD is to dispense with the requirement to submit an annual tax return. All of a taxpayer’s financial data will be “pushed” to their personal digital tax account (PTA). In some respects, this makes good sense. At present, employers, pension payers, banks and other institutions inform HMRC of income (and where applicable, tax deducted), and this same information is then reported to HMRC by individuals via their SA filing. Under MTD, information will build during the course of the tax year, from third party data streams or by direct upload – by taxpayers or their agents – to the individual’s personal digital tax account (PTA). Accordingly, the need to report this same information, by submitting a return, will be unnecessary.

This does raise interesting processing issues for tax advisors. For instance:

  • Accounting software, adjusted (according the consultation documents) for usual addbacks and allowances (CAs etc.) will drive a client’s liability to income tax and related NICs. Does this mean that our tax software is now redundant? Or will its future use be to duplicate a client’s PTA so we can check to see if HMRC’s stated position is correct? In any event, tax software per se will no longer upload tax data to HMRC, this will all be handled by accounting software. What on earth is going to happen to Iris, Sage and the rest of compliance software suppliers to the profession?
  • Will Xero and other “bookkeeping” software providers take the opportunity that MTD offers to provide users (your clients) with formatted annual accounts, that can be generated at the click of a mouse and emailed direct to bank managers et al?

Preparing and filing tax returns, the provision of income tax estimates via our tax software, together with the preparation of annual accounts, are services at risk.

Many tech-savvy firms are already preparing themselves for the challenges and opportunities that MTD will open up. The report that follows takes a hard look at the changes tax professionals will need to embrace to avoid unnecessary loss of earnings and to capitalise on the opportunities to create new levels of client service.


R & D for small companies

HMRC have published a really well-presented PDF booklet “Research & development tax relief” – it was updated November 2016.

It covers most of the basics and could be used in a variety of ways:

  1. Distribute a copy to staff who may become involved in advising clients.
  2. Add it to you own CPD reading list.
  3. Send a copy to clients who may qualify and follow up with a visit or phone call.

This is still seen by most advisers as “beyond their ken…” which is a shame as there are real win-win benefits for clients and your firm. The case studies are particularly instructive – pages 34 to 40 – for example:

 ICT  – The computer games industry provides particularly good examples of innovative projects that do meet the requirements of the R&D schemes and also examples of projects which do not.

No matter how original and inventive the game storylines are, these are not scientific or technological advances. The important criterion is not ‘what’ is produced but ‘how’.

A company realised that each object on a game’s screen had to be programmed in respect of its interaction with all the other objects. As the game became more complex, more objects were introduced and the amount of code required rose exponentially. The solution was to programme the properties of each object. When the objects interacted, a separate code was no longer required as the inherent properties produced the outcomes. The qualifying expenditure on developing this innovative code qualified for R&D relief.

The ICT sector is so fast-moving that further advances overtake new and ground breaking developments very quickly. What is important is that a project represents an advance at the time of development. New encryption and security techniques are being developed regularly and in many cases give rise to further advances. Even if the technique is quickly rendered redundant it will probably qualify for relief. The same applies to new search engines using new search methods.

Many advances are in the software field but advances in hardware are not unusual and will qualify for R&D relief if they are designed to overcome a scientific or technological uncertainty. Equally, very small companies dealing in subcontracted work may qualify if the work undertaken is sufficiently innovative, even if the larger contractor’s project does not qualify.

The booklet can be downloaded at http://www.hmrc.gov.uk/gds/cird/attachments/rdsimpleguide.pdf

Be an MTD guinea pig…

From today, I will endeavour to find something of interest to tax practitioners and post it on this blog. Often this will be link to web publications that I believe will be of interest.

Occasionally, I may attach complimentary material that you can use in your practice to cross-sell or win new clients.

Today, I’d like to share a call I had recently with HMRC’s Making Tax Digital team.

You may have noted that HMRC are aiming to trial, beta test, their MTD systems by offering early registration to UK tax payers.

I still have a small practice, a partnership, but the thought of exposing a self-employed trader to un-tried MTD compliance systems did not fill me with confidence. However, I am of the opinion that it is best to find out as much as you can about system changes, particularly one as far-reaching as MTD, so I have volunteered my practice as a guinea pig…

Apparently, HMRC will be flexing the sole-trader systems firstly, from April 2017 (next month), and in short order, thereafter, partnerships.

I recommend that you consider joining this trial process. Your practice may not qualify (if you are incorporated) but you may have a client that would agree to volunteer, if you did all the work pro-bono, as a learning process for the practice.

The post spring budget MTD policy paper can be accessed from the following link, just in case you are short of reading material. 

And if you are tempted to join in the trial, you can contact Chris Kelly of the MTD team at:

Chris Kelly
Making Tax Digital for Business
Customer Readiness & External Stakeholder Team
03000 568924 / 07799 341716
Dukes Court, Duke Street, Woking, Surrey,GU21 5XR