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Licensing laws and accommodation exemptions

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28th Nov 2005
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Changes in Licensing Laws mean that job related accommodation may become far more of an issue in the future. By Nichola Ross Martin

Part 3 Chapter 5 ITEPA 2003 does not apply to living accommodation provided for an employee if it is necessary for the proper performance of the duties that the employee should reside in the accommodation provided. Since this exemption only applies to lower paid employees and occasionally directors, many accountants do not see the exemption in practice after sitting their examinations.

Changes in Licensing Laws mean that job related accommodation may become far more of an issue in the future. Under the new rules a premises must have a 'designated premises supervisor', and if there is a 24 hour license, the supervisor must be on the premises at all times. It is possible to delegate this role, but whoever is in charge must stay on the premises.

This creates a certain amount of difficultly, as it makes life infinitely easier if the premises supervisors can both live on the premises. Most managed pubs and some clubs have accommodation upstairs, generally occupied by the owner or tenant, or staff. They are normally covered by the 'proper performance' part of the exemption.
In some cases, where accommodation is limited, it is provided in adjoining premises. This week I was asked if this alternative would still satisfy the requirement for the tax exemption. The hostelry in question has applied for and obtained a 24-hour licence, and whilst it does not intend to stay open all the time, it does intend to extend its hours. No employee can be expected to stay on shift for the whole time, and so a rota system will be set up, and it is preferable to all if accommodation is provided for both employees taking part.

HMRC take a very restrictive approach in regard to the income tax exemption for living accommodation claim where it is necessary for proper performance of employee's duties. This was recently brought to my attention in an article in Tolley's Practical Tax by David R. Harris, barrister and head of Prince Henry's Chambers.

The test of exemption is only satisfied, according to HMRC, where the employee can demonstrate that occupation of the particular property (as opposed to any other property) is essential to the proper performance of the duties of the employment.

They support this view by being highly selective in their choice of dicta from the authority of Langley and Others v Appleby 53 TC 1, in which Fox J said at page 21
"If it is asserted that it is essential for the servant to occupy the house in order to perform his duties, it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other."
The EIM manual continues -The words "that house and no other" emphasise the strict nature of the test. An employee may claim that it is necessary to occupy a particular residence because the employer requires the employee to live there. This is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence.

David R. Harris points out that the manual fails to point out that in a following case Vertigan v. Brady 60 TC 624, Knox J. found it a Special Commissioner's findings quite acceptable that the accommodation should not be in a particular house, but alternatively, a house within a closely defined perimeter.

One hopes that common sense will prevail in this instance, whilst living accommodation is a useful benefit; it is not always practical for an employer to make an employee literally live above the shop.

Nichola Ross Martin

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