HMRC To Keep Tax Breaks For Pub Managers

by Robert Lee, Tax-News.com, London

30 August 2007

The UK's HM Revenue and Customs has abandoned plans to remove valuable tax breaks for live-in pub managers on the accommodation provided by their employers, after a successful campaign by the drinks industry and business advisors KPMG.

Living accommodation provided to employees is normally viewed as a “benefit in kind” by the tax authorities, and is therefore liable to tax and National Insurance contributions.

Pub managers have, historically, had an exemption from this rule on the basis that it is “customary for employers to provide living accommodation to employees”, but recently HMRC attempted to challenge this exemption, arguing that it was no longer the norm for managers to live above the premises.

With KPMG's help, the Association of Licensed Multiple Retailers carried out a survey to help clarify the issue. The results revealed that 93% of respondent companies provided managers’ accommodation in some or all of their estate. Furthermore, almost two thirds of respondents stated that it was contractual in all of their outlets that the manager lives in the accommodation provided.

In the face of this evidence, HMRC have agreed that the exemption for pub managers should remain.

John Chaplin, Director, Employment Taxes at KPMG in the UK, announced that: “The research showed clearly that living on the premises is not only the norm, it is considered essential and therefore made a contractual obligation in the majority of cases. We are very pleased that HMRC have reviewed the evidence and taken the sensible decision to leave the exemption as it stands. Pub managers will be very relieved by this latest move as some of them were facing huge tax bills – almost GBP25,000 a year for a higher rate taxpayer in accommodation valued at the central London average rent. Whilst HMRC's stance is good news for the licensed trade, I wonder just how many other employers provide 'tax exempt' accommodation to staff and who might be open to a similar challenge”

The tax liability on accommodation viewed as a benefit in kind is calculated on the basis of the value of the accommodation and the taxpayer’s marginal rate. According to KPMG, a lower rate taxpayer provided with accommodation valued at GBP100 a week would face an annual tax bill of GBP1,144; his employer would also have to pay almost GBP700 in additional NIC. A higher rate taxpayer living in accommodation at the central London rental average of GBP1,135 a week would face an annual bill of GBP23,608, with his employer paying another GBP7,555 in NIC.

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