Income Tax (Earnings and Pensions) Act 2003 section 364

Deductions where living accommodation provided

Section 364 allows a deduction from earnings where an employee is taxed on the benefit of living accommodation provided by an employer, and the cost of that accommodation would have been deductible had the employee paid for it directly.

• Where an employee's earnings include a taxable benefit for living accommodation, a deduction may be available if the employee would have been entitled to claim a deduction had they paid for the accommodation themselves.
• The deduction is limited to the amount that would have been allowable had the employee actually incurred and paid a sum equal to the taxable benefit amount during the tax year.
• The deductibility test is applied by reference to the rules for expenses deductions and travel expense deductions (Chapters 2 and 5 of Part 5 of ITEPA 2003).
• The deduction may cover all or only part of the taxable benefit, depending on how much of the hypothetical expenditure would have qualified for relief under the relevant deduction rules.