In today’s fast changing commercial environment, it is common for employers to provide board or accommodation to employees, and move staff to new locations based on the needs of the business. This can occur when permanently moving an employee to a new location, or when temporarily seconding an employee to a different location.
The value of board or accommodation provided to an employee generally comprises income of the employee and is subject to PAYE. However, in relocation scenarios, given the business drivers in these situations it is sometimes possible for accommodation to be provided tax free. The rules are prescriptive, so it is a case of working through them to confirm how they apply.
In the case of a permanent relocation, payments for accommodation may be treated as non-taxable to the employee for up to three months from arrival at the new location, providing they have moved to:
- take up employment with a new employer, or
- take up new duties at a new location with the existing employer, or
- continue in their current position, but at a new location.
If an accommodation allowance continues after this three month period, the payments will become taxable to the employee. Various other costs can also be paid tax free, such as moving and transportation costs. Refer to Inland Revenue’s determination 09/04 for a complete list.
In the context of a temporary change in workplace, such as a secondment, the length of the secondment and its purpose will determine to what extent accommodation will be tax free. If the business intends the temporary relocation to last for a period up to 2 years, then the accommodation for the whole duration of the secondment can be treated as non-taxable. This tax free period can be extended to 3 years if the employee is working on a project to build restore or demolish a capital asset. If it becomes evident that the employee will need to be seconded for more than 2 or 3 years, respectively, the accommodation will be taxable from the date expectations change.
Real life scenarios can of course be complicated and the rules themselves are complex as they attempt to accommodate (no pun intended) those situations. For example, the rules cater for employees with multiple workplaces, new employees who are placed on immediate secondment and extended periods due to exceptional circumstances, such as natural disasters.
For businesses encountering this scenario, the first priority is to ensure there is a system in place to capture and record the provision of accommodation to employees. It is then a matter of confirming what the correct tax treatment is. There is no distinction between whether the employer pays an accommodation allowance or provides accommodation directly.
The rules can be complex depending on the situation, but tax is a business expense (and risk) like any other and should be managed accordingly.