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HMRC internal manual

Employment Income Manual

Deductions from general earnings: the benefits code: example of deduction from living accommodation charge

Section 364 ITEPA 2003

An engineer who lives in Manchester is required by her employer to work at a site in Cornwall that is a temporary workplace. She works there for 3 months in the tax year 2003 to 2004 and her employer rents a house for her in St Ives for 4 months. For the last month she brings her husband and family to St Ives for a holiday. The house rental is £1,200 per month.

There is an earnings charge on the employee under section 102 ITEPA 2003 for the living accommodation provided by the employer. The amount of that charge is the rent paid by the employer. A deduction is permitted from that charge by section 364 ITEPA 2003 to the extent that a deduction would have been available if the accommodation had been paid for by the employee out of her own earnings.

For 3 months any travel costs are attributable to necessary attendance at a temporary workplace. Travel costs include the cost of the accommodation in that period. The cost of accommodation in the last month is not deductible.

The net earnings for the tax year 2003 to 2004 are computed as follows.

Cost of providing the accommodation 4 × £1,200 £4,800
Less business use (3/4)   £3,600
Net taxable earnings   £1,200