Tax-free accommodation, P11D and off-payroll labour; employment tax updates for HEIs/Universities

03 March 2021

Keeping up to date with employment tax legislation can be difficult, especially when some changes are not specific to higher education. So understanding the practical application at your university is paramount to ensuring you remain compliant. We will update this page on a regular basis with the latest changes in employment tax that affect universities, providing practical guidance and resources to support you with your understanding and implementation. 

This latest update focuses on the impact of recent changes to tax-free accommodation provided to university staff on your annual forms P11D declaring benefits in kind , as well as the increased compliance responsibilities resulting from  off-payroll legislation, both of which come into effect on 6 April 2021.

Tax-free accommodation provided to university staff

The issue of tax-free accommodation provided to staff working in universities is one that needs careful consideration and remains at the top of HMRC’s agenda, with the removal of the “representative occupier” concession at the start of the new tax-year 2021/22. We consider the basis on which the benefit in kind, in relation to accommodation owned by the university, should be declared going forward and, while this article focuses on tax-free accommodation provided to Vice Chancellors (VCs), it could equally apply to other staff in your organisation. 

Representative occupier concession

As many of you will know already, there has been a major change in the tax treatment of provided accommodation in recent years, with HMRC declaring that it no longer considered the provision of accommodation to be “customary” in Higher Education Institutions (HEIs) with effect from 6 April 2019. As a result, many universities had to review their accommodation to determine whether they would have to declare benefits in kind on forms P11D or whether they could rely on other exemptions or concessions. The removal of the representative occupier concession from 6 April 2021 leaves universities having to consider the provision of accommodation, once more. 

HMRC will have a key role in ensuring tax compliance and whilst the forms P11D declaring a benefit in kind do not need to be submitted until 6 July 2022, what universities choose to do now could have a significant impact on costs both for the university (via Class 1A NIC obligations) and for the VC’s themselves (in terms of personal tax). The cost of the accommodation is key to how the benefit in kind should be declared going forward.

How to calculate the cost of university accommodation? 

The market value of many properties occupied by VCs is considerable, but do universities have to use market value and what do we mean by cost? There are two ways in which the taxable benefit may be calculated, depending upon the cost of the property. HMRC’s Employment Income Manual has a useful flowchart demonstrating this. 

Let us consider the issue of cost. Firstly, could the cost of the property be £75,000 or less? If it is then the benefit in kind is based on annual value (i.e. rateable value) rather than market value; there is a huge disparity between these two figures. Many universities will have owned the properties for a considerable time, so the property may have been acquired at an extremely low cost or even gifted to the institution. When considering what method of calculation you should adopt for benefits in kind it is worth considering what the actual cost to the university has been of acquiring and improving the property. 

In terms of considering the £75,000 cost threshold, broadly, you need to take into account the cost of improvements but not repairs. Even where the costs incurred are above £75,000, it is vital that you split those costs into improvements and repairs. This allows you to exclude the cost of repairs, which may be high where the property is Grade 1 or Grade 2 listed.  

Do not forget that you should also declare associated costs such as Council Tax, Water, utilities, etc. It is also possible to agree a proportionate benefit in kind where part of the property is used for entertaining (under pre and post COVID lockdowns).

Off-payroll increased compliance responsibilities

We are often asked whether the new off-payroll rules (IR35), which extend to the private sector, will be postponed for a second time. Jesse Norman (Financial Secretary to the Treasury) confirmed on 18 January 2021 that the rules would go ahead from 6 April 2021. This means that institutions will have increased compliance responsibilities and even those of you who have policies, processes and controls in place for off-payroll workers, whether self-employed or engaged via an Intermediary (their PSC or an Agency), may need to revisit these to ensure compliance with the additional requirements. 

Getting your university’s off-payroll process right

Many universities will not deal with the engagement of contractors centrally, but will leave the responsibility with individual departments or faculties. A key part of being able to identify off-payroll workers early is to have the right process in place. The ideal process ensures that those who engage off-payroll workers have a clear understanding of their responsibilities. It also ensures the university is able to demonstrate to HMRC that it has taken reasonable care when dealing with off-payroll workers. 

The first step is to identify all off-payroll workers, categorising them into 1) self-employed or 2) those engaged via Personal Service Companies (PSCs). Experience has taught us that for many universities it is the numbers of self-employed individuals that can give more cause for concern than PSCs. The introduction of new rules around those engaged via PSCs also gives universities the ideal opportunity to look at both categories of off-payroll workers. 

What additional compliance responsibilities will universities face from 6 April 2021?

  • Status determination – Statement Determination Status (SDS) should be provided to the worker’s PSC and, if there is an agency in the supply chain, to the next agency in the chain closest to the university. The university needs to understand the complete supply chain to comply with this requirement.
  • Status disputes – must be dealt with in 45 days. Where the worker themselves, or worker’s PSC, disputes the status decision, the university must reconsider its original decision and provide a response to the worker/worker’s PSC with its decision. A process must be put in place and the university will need to make clear where the responsibility lies within its team for fulfilling this requirement. 

How BDO’s Higher Education Tax team can support you

Our Higher Education tax team is familiar with the issues in relation to the provision of accommodation in universities and can take a practical, independent view to help ensure the right level of accommodation benefits are declared and help inform how you provide accommodation in future.  

We also have significant experience of working with universities to help them prepare for the introduction of the off-payroll rules, which applied from 6 April 2017, as well as for the new changes. We have developed a tool to help universities identify off-payroll workers and categorise them correctly, so that when status is considered all off-payroll workers have been captured, whether self-employed or engaged via their PSC.  

If you would like to discuss how we can support your university with its provision of accommodation or would help preparing for the new off-payroll rules, please contact your BDO charity adviser or one of our University Tax specialists: Caroline Jones, Employment Tax Director, Paul Knight, Head of Not for Profit Tax.