Farmworkers’ and Estate Workers’ Accommodation: UNDERSTANDING THE CURRENT TAX TREATMENT

Provision of accommodation to farmworkers has long been a common feature of rural employment. Historically, much of this accommodation was treated as a tax free benefit, reflecting the necessity of living close to the land, livestock, or estate being managed. Legislative changes along with withdrawal of long standing concessions have made the rules far less straightforward.

Accommodation provided for the proper performance of the employee’s duties

Living accommodation provided to agricultural workers can remain tax exempt only if the employer can demonstrate that the occupation of the property is a requirement of the job and necessary for the proper performance of duties.

Employment contracts must reflect the requirements of the role and explicitly state that living in the accommodation is a requirement of the role. Without clear evidence, HMRC may treat the accommodation as a taxable Benefit in Kind (BIK).

Accommodation provided customarily and for the better performance of duties

Accommodation may also be tax- exempt when it is customary for more than half of employees in similar positions, to be provided with accommodation AND the accommodation is provided for the better performance of the employee’s duties. Evidence that it is customary in your industry (not just in your employment) for employees to be required to live in provided accommodation must be kept. You must also prove that by occupying the particular accommodation the employee can perform the duties better than if they lived elsewhere. Consequently, it is necessary to look at the duties, if any, that are performed outside the employee’s normal hours. This test is more challenging for diversified farms and estates, where roles may no longer follow traditional patterns.

Many workers previously relied on an Extra Statutory Concession known as “Representative Occupiers”. This was withdrawn on 6 April 2021. Many employers—particularly in estates with diverse roles—may not have recognised it is no longer possible to on this protection.

While many traditional agricultural workers will continue to meet the “necessary for proper performance” exemption, the withdrawal of the representative occupier concession creates real uncertainty for others.

Employers must gather strong evidence that:

• Occupation of accommodation genuinely supports the proper performance of duties; or
• The role meets the “customary” test, and the employee must live in the accommodation “for the better performance” of their duties.

Without this, the accommodation can become a taxable benefit in kind (BIK).

Directors/shareholders

Where directors/shareholders provided with accommodation have a material interest in the company (more than 5%) the provision of accommodation cannot be exempt from tax and gives rise to a BIK.

Accommodation which is not tax exempt, gives rise to a taxable BIK which must be reported annually. The employer is liable to Class 1A NIC on the value of the BIK. HMRC is introducing mandatory payrolling of BIKs from 6th April 2027. Accommodation is one of those BIKs which is not required to be payrolled, unless the employer chooses to do this voluntarily.

All utility bills paid for by employers give rise to an additional BIK, even if the accommodation is accepted to be of the type which is tax-exempt.

It is necessary to consider NMW and the accommodation “off set” rules. All employees must be paid at least NMW of £12.71 per hour (for those over 20). The daily accommodation off-set is £11.10 per day and should be taken into account for NMW purposes when employees are provided with accommodation, whether or not they pay their employer rent for the property. Where the accommodation is provided rent free employers add the accommodation off-set to pay to check that NMW has been paid. Where Rent is paid by the employee it is necessary for the employer to first deduct rent from pay and then add back the accommodation off-set to ensure that NMW has been paid.

Where rent is deducted from gross pay a taxable BIK will arise. The BIK is the greater of the accommodation benefit itself or, the reduction in gross salary. Where the accommodation is tax exempt the measure of the BIK is the amount of rent deducted from gross pay, e.g where a worker’s salary is reduced by £500 per month an annual BIK of £6,000 arises. The employer will be liable to Class 1A NIC on the benefit.

On the other hand, where rent is deducted from net pay, any accommodation BIK can be reduced by the rent paid. If the accommodation is tax exempt no BIK arises. In both cases the calculation for NMW (point 5 above) should be carried out to ensure at least NMW has been paid.

Accommodation provided to retirees, which previously attracted the tax exemption, can still continue to be provided tax-free if:

• the employee continuously occupied the accommodation or similar accommodation for a period of 5 years immediately prior to retirement, and
• the individual continues to occupy the same or similar accommodation after retirement.

Tax treatment depends heavily on employment contracts and daily duties. It is recommended that you review your current arrangements to ensure compliance with HMRC regulations. This should include:

• Employment contracts
• Job descriptions
• Working patterns and on call requirements
• Historic arrangements for retired workers or widows
• National Minimum Wage implications

Proper documentation is essential to defend tax exempt status.

Given the complexity of the rules surrounding the provision of accommodation, obtaining specialist employment tax advice is highly recommended. For further information please contact Sam Kirkham or Caroline Jones.