Where an employee stays in staff accommodation at the practice only for nights that they are on call, there is no BIK. This applies to both vets and nurses.
Otherwise, the general rule is that where living accommodation is provided to an employee by their employer, this is a taxable BIK.
The BIK rules apply only to accommodation provided by an employer, that is where the lease is in the name of the employer or where they own the property. Where cash housing allowances are paid to employees to help with accommodation costs these should always be processed through the payroll for income tax and NICs purposes.
HMRC provide instructions on how to calculate accommodation benefits here.
An additional benefit will arise if the practice pays for associated costs such as utilities, council tax, furniture or electrical goods.
Where accommodation is provided under an ‘optional remuneration arrangement’, such as salary sacrifice, special rules apply, even where the accommodation benefit is exempt.
Accommodation provided to veterinary assistants
There are a number of exemptions to the BIK charge on accommodation, including the ‘customary and better performance’ exemption, which applies where:
- The accommodation is provided for the better performance of the duties of the employment; and
- The employee’s employment is one where it is customary for employers to provide living accommodation for their employees.
In respect of veterinary assistants (but not veterinary nurses), HMRC accept that the 'customary' test is met. However, the 'better performance' test has to be considered in each individual case. HMRC state in their manuals that ‘the employee has to show that by occupying the accommodation provided the employee really can perform the duties better than if the employee lived elsewhere’.
HMRC’s view is that the test is not satisfied merely because the accommodation enables the employee to get to work more easily, as the duties of employment do not normally begin until an employee arrives at work. Therefore it is necessary to look at duties that are performed outside normal hours i.e. when the employee is on call.
HMRC will accept that the ‘better performance’ test is met in practice if:
- the employee is required to be on call outside normal hours; and
- the employee is in fact frequently called out; and
- the accommodation is provided so that the employee may have quick access to the place of employment or other place to which the employee is called.
For the accommodation exemption to apply, you must be satisfied that a vet meets all three of the conditions set out above.
Company directors (even when they are veterinary surgeons) are specifically excluded from the exemption.
Other costs in relation to accommodation
Whilst water rates, council tax and sewerage charges are also covered by the exemption, other costs, such as heating, lighting and cleaning are not. Therefore, if these costs are paid by an employer, even if the exemption applies, there will be a P11D benefit.
Where the accommodation exemption applies the P11D benefit is calculated as the lower of:
- the full cost of the heating, electricity etc.; and
- 10% of the employee’s net earnings minus any contribution that they make to costs.
Where the accommodation exemption does not apply, the P11D benefit would be the full cost of the expenses paid per annum.