EIM31618 | Deductions from general earnings: the benefits code: example of deduction from living accommodation charge

Section 364 ITEPA 2003

An engineer who lives in Manchester is required by their employer to work at a site in Cornwall that is a temporary workplace. They work there for three months in the tax year 2020 to 2021 and their employer rents a house for them in St Ives for four months. For the last month they bring their husband and family to St Ives for a holiday. The house rental is £1,200 per month.

There is an earnings charge on the employee under section 102 ITEPA 2003 for the living accommodation provided by the employer. The amount of that charge is the rent paid by the employer. A deduction is permitted from that charge by section 364 ITEPA 2003 to the extent that a deduction would have been available if the accommodation had been paid for by the employee out of their own earnings.

For three months any travel costs are attributable to necessary attendance at a temporary workplace. Travel costs include the cost of the accommodation in that period. The cost of accommodation in the last month is not deductible.

The net earnings for the tax year 2020 to 2021 are computed as follows:

• cost of providing the accommodation: £1,200 × 4 months = £4,800

• less business use: £4,800 × (3 ÷ 4) = £3,600

• net taxable earnings: £1,200