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HMRC internal manual

Employment Income Manual

Tax treatment of local authority officials and employees: provision of expenses payments and benefits: effect on gross pay

Where a local authority takes a benefit into account in determining the grading for pay of any post, for example the provision of board and lodging or the use of a house, the amount of the employee’s earnings for tax purposes is governed by the terms of the contract between the authority and the employee (see EIM00530 onwards).

Where the employee is entitled, under the contract, to:

  • a stated salary, and is required to make a payment or suffer a deduction from it for the value of board and lodging or the use of a house, etc., the gross amount of the stated salary is the amount chargeable to tax. PAYE should be operated on the full amount.
  • free board and lodging or the free use of a house, in addition to a stated salary, the amount subject to PAYE is normally the stated salary only. This is so even where the value of the benefit is added to it by the local authority for superannuation purposes. Where, however, the benefit provided is the free use of a house and the employee is not exempt under Sections 98 to 100 ITEPA 2003 (see EIM11331, EIM11332 and EIM11336 onwards), the amount for assessment is the stated salary together with any charge arising under Section 102 ITEPA 2003. (see EIM11301 onwards) plus any costs of occupation of the house borne by the local authority, for example council tax or fuel and light (Nicoll v Austin (19TC531)). The cost of repairs is considered to be the owner’s liability and should therefore be left out of account.