Employer-provided Accommodation – Opportunity to resolve lease premium liabilitiesWednesday, June 16th, 2010
Legislation was introduced by means of the Finance Act 2009 to prevent attempts to avoid tax and NICs by means of the payment of a lease premium rather than the full market rent for the use of the accommodation. Where the person providing the accommodation pays rent, the charge is based on the actual rent paid (less any amount made good by the employee), where that is more than the annual value of the accommodation. However, in order to try to avoid paying tax, some employers have made use in recent years of a scheme that involved an upfront payment, described as a “lease premium”, and payment of a very small “peppercorn” rent.
From 22 April 2009, the statutory rules for determining the taxable value of the provision of living accommodation were changed so that, where a lease premium is paid for a lease of 10 years or less, the lease premium is treated as if it were actual rent paid. The taxable amount in any tax year is treated as
- the amount of the lease premium spread over the duration of the lease,
- plus the amount of any rent paid by the person at whose cost the accommodation is provided,
- less any amount made good by the employee.
The statutory change did not apply to leases entered into before 22 April 2009, except where the lease is extended after that date. Despite that, HMRC is of the view that lease premium arrangements in place before that date did not succeed in their objective and that the amount described as a premium is, in reality, rent for the purposes of quantifying the taxable benefit. HMRC will, therefore, continue to seek recovery of the tax and NICs that it believes should have been paid in earlier tax years (less what has already been paid) and believes that it would be successful in challenging any appeals made by employers to the tax tribunals.
However, on 7 June 2010, HMRC announced that a time-limited opportunity is being extended to employers who have made use of this tax avoidance scheme to agree on a financial settlement in respect of the tax and NICs that would have been due if the scheme had not been used. Any settlement will also include interest charges but not penalties. The invitation is available for two months only and will not be available after Friday, 6 August 2010.
Full details of this initiative and the procedures for registering an interest in reaching a settlement are set out in the documents mentioned below.