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HMRC internal manual

Employment Income Manual

Tax treatment of people employed in the prison service: rent allowances

Rent allowances, and compensatory grants in connection with such allowances, paid to prison officers who do not occupy accommodation provided by the prison authority, are taxable as earnings within Section 62 ITEPA 2003 (see generally EIM00515).

The compensatory grants are based upon the amount by which the tax deducted from earnings during the preceding year in accordance with the tax tables increased by virtue of the inclusion in earnings of a rent allowance or compensatory grant.

In the year in which an officer leaves the service, two grants are payable. One is in respect of tax paid for the preceding year and the other for the year in which he or she leaves. These grants are chargeable as income of the year in which they are payable.