Withdrawal of “representative occupier” tax exemption from April 2021

If you currently rely on the “representative occupier” exemption to provide tax-free accommodation to your staff, we recommend that you take action well in advance of next April to identify and plan for any necessary changes.

What is the “representative occupier” concession?

Historically, HMRC has allowed a non-statutory exemption for the provision of living accommodation to employees who qualified as “representative occupiers” on 5 April 1977, and successors to the same post, provided circumstances have remained unchanged since that date.

There are three conditions to qualify for “representative occupier status”:

1. the employee lives in a house provided rent free by the employer; and
2. the employee, under the terms of his/her contract, is required to live in that particular house and is not allowed to live anywhere else; and
3. the employee is reasonably required to live in that house for the better and more effectual performance of his or her duties.

We rely on the “representative occupier” exemption: what should we do?

You should consider whether any other tax exemptions apply to those employees.

If no other exemption applies, the provision of accommodation will be a taxable benefit.  You should communicate with affected employees and consider whether your contracts or arrangements with them need to be changed before 6 April 2021. 

What other tax exemptions are there?

In addition to the non-statutory “representative occupier” concession, there are three statutory exemptions.

1. Customary and better performance exemption: where accommodation is provided for the better performance of the employee’s duties and it is customary for employers to provide living accommodation for that kind of employment.
2. Necessary for the proper performance exemption: where the occupation of a particular property, and no other, is essential for the proper performance of the employee’s duties.
3. Special security exemption: where there is a special threat to the employee’s security, special security arrangements are in force, and the employee resides in the accommodation as part of those arrangements.  In practice, it is very rare that employees would qualify for this exemption (HMRC gives the example of an employee under a genuine terrorist threat to his or her life).

Since 6 April 2019, HMRC no longer accepts that the customary and better performance exemption applies to employers in the higher and further education sector (note: this does not affect boarding schools, where HMRC accepts that accommodation provided to staff in certain roles automatically qualifies for exemption).

However, the customary and better performance exemption can still apply to employers in other sectors.

Next Steps

If you provide accommodation to your employees, you should review those arrangements and identify any where you are relying on the “representative occupier” exemption.

In those cases, you will need to consider whether accommodation can still be provided tax free under one of the statutory exemptions discussed above.

If other costs are paid in connection with the accommodation, such as council tax and utilities, the tax treatment of these payments should also be reviewed.

We recommend that you do this as soon as possible to ensure you have sufficient time to engage with affected employees and make changes to your contractual arrangements with them (if  necessary) before April 2021.

The above gives a high level guide to the issues you’ll need to consider. For anything more complex, our team of tax specialists can help.