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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Living accommodation: part of living accommodation used for business: example

Part 3 Chapter 5 ITEPA 2003

This page gives an example of a case where the premises are primarily designed as living accommodation but some rooms are being used exclusively for business purposes. There is the equivalent of a Section 336 ITEPA 2003 deduction from the provided living accommodation benefit (see EIM11503).

An employer purchased living accommodation for £300,000 in 2001. The living accommodation consists of ten main rooms. An employee is allowed to live in the living accommodation paying rent of £1,000 per annum. The employee is necessarily required to provide an office at home. The employee uses one room out of the ten in the living accommodation exclusively as this office. There is no exemption due from the provided living accommodation charge. The gross rating value for the whole premises is £1,500. The official rate of interest for 2002/03 was 5%.

The calculation of the amount of earnings for 2002/03 is:

  £   £
       
cost of providing living accommodation 300,000    
less 75,000    
additional yearly rent 225,000 at 5% 11,250
       
gross rating value 1,500    
less rent paid by employee 1,000    
Section 105 benefit 500   500
Total     11,750
less excess rent     nil
      11,750
less one-tenth business use   (£11,750 x 10%) 1,175
chargeable earnings     10,575