I have a query on behalf of someone who currently lives in tied accommodation and the property is provided on a rent free basis. The employer is altering this to comply with tax requirements and is going to start charging rent. To assist with this, there is going to be a salary increase. (no idea how much as yet).
They are worried that when their salary increases, their WTC and CTC will decrease and they will ultimately be worse off. The employer is saying that they should have been declaring the rent free accommodation when they claimed tax credits anyway.
I cannot find anything to confirm this - just that payments of rent made on someone's behalf counts as employment income - but there aren't any payments as yet, and when there are the tenant will be paying themselves.
Can anyone point me towards guidance on this, or do you know how this will affect them? I cannot see how they can avoid losing out on tax credits when their salary increases, even if they then have to pay some of this out in rent.
Thank you!

I suspect the employer is right. Benefits in kind are included as taxable income if they can be converted to a monetary value. See this section of the Tax Credits Technical Manual

http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04103.htm

Tax credit rules follow normal tax practice in the income regulations.

Tied accommodation, for example, agricultural workers, caretakers, pub managers etc. are taken out of charge for tax purposes on the value of their living accommodation.

I think the employer is likely to be wrong; but much will depend on the nature of the tied accommodation.