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I have a situation whereby a Nursery Manager lives above the nursery she is charged with running. The whole property is owned by the employing company. The Manager currently pays rent/share of bills from her net salary. I have been looking at ways where they could provide accomodation as a tax free benefit. There are exemptions out there, but the guidance is abit vague and not very objective. We are putting together a list of arguments as why there is a need for the manager to live in close proximity. But has anyone got any clear guidance on this?

Thanks!

( I should point out the Manager is also one of the Directors of the company.)

Section 99 of the Income Tax (Earnings and Pensions) Act 2003 provides a tax exemption for living accommodation if

1. it is necessary for the proper performance of the employee's duties that the employee should reside in it, or
2. it is provided for the better performance of the duties of the employment, and it is customary for employers to provide living accommodation for employees in that type of employment.

The list of occupations that HMRC treats as meeting these conditions is shown in leaflet IR202 at http://www.hmrc.gov.uk/helpsheets/ir202.pdf. It does not include nursery managers, so you are right in putting together a case to have the job included in the list. You will find HMRC's own guidance useful in the Employment Income Manual at http://www.hmrc.gov.uk/manuals/eimanual/EIM11331.htm onwards.

However, the section 99 exemption does not cover certain directors. To quote the legislation exactly:

(3) But if the accommodation is provided by a company and the employee (“E”) is a director of the company or of an associated company, the exception in subsection (1) or (2) only applies if, in the case of each company of which E is a director-

(a) E has no material interest in the company, and
(b) either-

(i) E’s employment is as a full-time working director, or
(ii) the company is non-profit-making or is established for charitable purposes only.

(4) “Non-profit-making” means that the company does not carry on a trade and its functions do not consist wholly or mainly in the holding of investments or other property.
(5) A company is “associated” with another if-

(a) one has control of the other, or
(b) both are under the control of the same person.

You may find, therefore, that the exemption does not apply even if you can justify it. The Employment Income Manual, referenced above, explains who is or is not a director for this purpose.

Thanks Ian. I thought the directorship would throw a bigger spanner in the works!