Does your company provide you with living accommodation?
Your company may provide you with a job-related accommodation which is necessary for the better performance of your duties.If you are a company Director who has more than 5% shareholding of your company and you work full time for the company, then the job-related accommodation will be treated as a benefit in kind.You need to calculate the value of the benefit and then pay income tax on this value
If your company rents the accommodation from another Landlord, then you need to calculate 2 figures;
1. The rent paid by your company, who would be your landlord
2. The rent which might reasonably be expected to be obtained on letting the property (market value of the rent)
You simply take the higher figure from the above and that will be the value of your benefit. It is on this value of the benefit that you will pay income tax.
If your company leases the accommodation, then you will need to perform the same calculation, but you will need to add the amount of premium paid for the lease when calculating the first step.
For example, if your company has a 10-year lease and paid £50,000 with a monthly rental payment of £200, then you would calculate step 1 as follows;
£50,000 / 10 = £5,000
£200 * 12 months = £2400
Total = £7,400
You can then proceed to calculating step 2 which is working out the market value of the rent.
Once you have these 2 figures then the highest figure will be the value of your benefit.
If the value of the accommodation did not cost more than £75,000, then the value of the benefit is equal to the market value as shown in step 2 above.
If the accommodation cost more than £75,000 then there will be an additional benefit. We calculate this by taking the cost of the property, minus £75,000 and multiply this balance by HMRC’s official interest rate at the start of the tax year.
Please note that if your company has owned the property for more than 6 years, then you will need to use the market value of the property and not the cost figure.
If your company is paying for your household bills, then this will give rise to an additional benefit. To calculate the value of the benefit you simply calculate the cost to your company for paying these bills.
Once you have calculated the value of your benefit, you will then pay income tax at a rate depending on which earnings band you are in. For the tax year 2019/20, you will pay 20% income tax on the value of your benefit if your income is below £50,000 pa.
Your company will also need to pay employers’ national insurance on the value of the benefit. For the tax year 2019/20, your company will pay 13.8% on the value of your benefit, regardless of what your personal income is.
For example, if the value of your benefit is £5,000 then as a basic rate taxpayer your total tax bill would be;
£5,000 * 20% = £1,000
£5,000 * 13.8% = £690
Total Tax = £1,690
Calculating the value of your benefit may seem a bit complicated which is why you should have a professional calculate the figures for you. However, it is important for you to understand how this benefit is calculated and what options there are to reduce this. For example you can reduce the value of your benefit by contributing to the cost of the property. You can also reduce the value of your benefit by renting the property for part of the year rather than the full tax year. Finally, the value of your benefit should be reported on a P11D and submitted to HMRC by the 6th July following the tax year.