EIM01025 - Employment income: board and lodging: example
Sections 62 and 203 ITEPA 2003
Employee A
Employee A is paid 拢7,500 a year for 2015/16, with free board and lodging provided by the employer. The employer already owns the premises where the board and lodging is provided, and the additional direct costs incurred by the employer in connection with the provision (food, heat, light, and so on) total 拢900 per annum. A receives no other expenses payments or benefits.
A is not taxed on the benefit of the board and lodging. The benefit cannot be converted into money, so it is not earnings within Section 62 ITEPA 2003 (see EIM00520).And there is no charge under the benefits legislation because A is lower paid (the total of the cash wage, 拢7,500, and the 鈥渃ash equivalent鈥� of the board and lodging, 拢900, is less than 拢8,500).
If the cash wage, plus the cash equivalent of the board and lodging, had added up to 拢8,500 or more A would have been chargeable on the full cash equivalent (that is, the cost to the employer of providing the benefit) under Section 203, and the employer would have to report the benefit on form P11D. From 2016/17 onwards A is chargeable on the full cash equivalent, regardless of her rate of pay.
Employee B
Employee B has a contract of employment under which she is entitled to a salary of 拢10,800 a year (拢900 a month) for 2015/16. The employer provides B with board and lodging, in respect of which they deduct 拢150 a month from her pay. The actual cost to the employer of providing the board and lodging is 拢180 a month.
The employer must operate PAYE on the full 拢900 a month, before deducting the 拢150 for board and lodging. The full amount of the salary that B is entitled to receive under her contract of employment is earnings within Section 62, and the 拢150 is not allowable as a deduction under Section 336 (see EIM31620 onwards).
B is not lower paid, and she is therefore chargeable under Section 203 on the 鈥渃ash equivalent鈥� of the benefit of the board and lodging. The cash equivalent is 拢30 a month (cost to the employer 拢180 a month, less amount made good 拢150 a month).