Tax on my housing allowence - help please

Ballie_2

I am new to this site and this is my first post so I hope someone can help.

I have a question about tax paid on my income, my situation is somewhat unique to say the least.

I am PAYE working for a small but very honourable LTD company, in fact I am the only employee of the company. The company has been going since the 1950’s and has always only had one employee. From the 1950’s until 2001 (which was when I took the job) the employee has always lived in a cottage (always the same one) that was provided by the company. This cottage has always been provided free of charge for the employee as the employee is required to live near to the place of work.

When I took the job in 2001 I was unable to live in the cottage provided because it was too small for my family’s needs as it did not have enough bedrooms. However fortunately I owned my own property directly opposite the company’s house (just a few yards away) and this satisfied my employer’s needs to live close to the place of work.

When my employment started I was on the same salary as the previous employee but without the benefit of a free cottage being supplied, the company then started renting the cottage out which obviously gave them extra income gained from the rent paying tenants. After a year I approached my employer and asked if I could have a allowance ie pay increase for not having the perk of the free cottage, my employers agreed to this and from December 2002 until now I get what they call a housing allowance.

This is shown on my pay slip as a separate payment of “Housing Allowance” but it is subject to the standard Tax and NIC.

My employment contract clearly states that I must live where I do and provide storage for the company equipment that I use in my job, I also have a supplement letter detailing the terms of my housing allowance which again clear states that I am getting the allowance because the cottage provided is “inadequate for my family” it then goes on to say that id I move from my current address my employment will be terminated.

My question is as I am required to live at my current address and cannot move house, should I be paying tax on this housing allowance?

If I was able to taking advantage of the free cottage were it suitable I would not be paying tax on the perk of a free home would I?

Any thoughts please.

mrsmyagi

Yes, you should be paying tax on the housing allowance as it is income.

And you would have paid tax on the benefit of having the house provided had you lived there instead.

http://www.hmrc.gov.uk/ebu/p11d-ws1-2008.pdf

Ballie_2

Dear mrsmyagi and jimmo,

I must apologise, the information I gave in my original post was not thorough enough, you can only answer on the information given so I will explain a little more about my rather unique situation.

Jimmo, says that because I am doing the job from my property it proves the job can be done from an alternative property on the information I gave you I can’t disagree with that answer but there is a bit more to it than that please read on.

As I mentioned in my first post it is required that the employee must live in the free cottage provided so that they are near to the place of work but exceptions have been made in my case because my property is only a few yards away.

The job concerned is running a fishery, the reason you are required to live close to the fishery is so that you can deter poachers and get the equipment (a tractor and other equipment) to the fishery however, you are also required to provide storage facilities for the equipment and provide booking in facilities for the fishermen, please let me explain.

When a fishermen comes to fish for the day (and you don’t know when they are coming they just turn up) you need to provide a room (I have a large a porch on the side of my house) which contains a worktop with a log book on (which they fill in each time they fish) you need a chalk board on the wall that the fisherman add their name to showing who’s fishing and where, you also need a set of scales hanging from the ceiling for them to weigh their fish so that they can enter the details into the fishing log book and a provide some hand washing facilities.

In addition to the booking in facility and the storage of equipment the property must be able to provide adequate parking for the fishermen’s cars whilst they sign in and out. This parking must be able to accommodate at least 6 cars at the same time and allow say car number 5 for example to leave without the need for all or some of the other cars to be moved.

The cottage that can and has always been used until I arrived can provided all this because it has a large parking area, My property is set in almost 2 acres and also has a very large drive and parking area enough to accommodate 8 – 10 cars easily and still allow cars to come and go as without the need to wait for others to move (I have about 800 fishermen a season come to fish)

As I am sure you will understand in general terms there few properties that would reach this criteria and I can confirm that except mine there are none in the vicinity of the company’s cottage.

I realise that this still doesn’t change the fact that I am getting extra pay instead of a cottage but if I lived in the cottage it would not be a taxable benefit so why should I need to pay tax on the housing allowance? Sorry if I am barking up the wrong tree but the allowance is in excess of £7,000 a year and any tax saved on this would be most welcome.

mrsmyagi

Unfortunately I don't think this changes anything. You would be taxed on the company house as a benefit if you lived in it as you are still being provided with the use of an asset. The cash you are receiving is still income in the same way as if someone had the option to have a company car but chose a cash allowance in it's place - you pay tax on that too.

Sorry :-(

Ballie_2

I can confirm that I or anyone else would not have to pay any tax on the benifit of the free cottage, I know many people who have to live in houses provided by the estates or farms they work on and none of them pay tax. This I am 100% sure of.

Debt_Free_Chick

I'm not convinced you would win your argument with HMRC. You would have to demonstrated that it is essential that you live in that particular house, in order to get the exemption, if you lived there.

But as you are doing your job satisfactorily by occupying your current house, you are demonstrating that it's not, in fact, essential for you to live in the other house - if it were, then you wouldn't be able to do your job and live elsewhere. And if living at that property is essential, then there would be no housing allowance either as you would need to live at that property and nowhere else

Agricultural workers automatically get the exemption, if they occupy a property on the land they work, but I'm not so sure that fisheries are classed as agricultural.

I think you've proved that it is not essential to live at that particular property and on that basis, the exemption does not apply.

Ballie_2

Thanks for all your views, I might just try my case with HMRC, because as I am already paying tax and NIC on the Housing Allowance I have nothing to lose. Do I ?

I can also say with absolute confidence that on some of the big estates in the country they have more than one game keep or gardener etc, which means there is more than one houses being used as the only house that will do rule, therefore HMRC’s argument that only one house and no other can be used as tax free living is rubbish because say there was 3 game keepers all living in a separate house provided by the estate anyone of them could live in the others house and yet still receive the tax free benefit of a house, they could also switch houses with the gardener, or any other house on the estate that the owner wanted them to live in.

Surly I have a point?