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Salary sacrafice - computers?

I have read that salary sacrafice can be used for employees to buy computers.

The basic principle is

- ER buys the computer
- EE makes a salary sacrafice of the full amount (inc VAT)
- ownership is transferred to the EE

But, will this work - ie will the tax and NIC be avoided?

Many thanks,
James Pearce


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28th Jan 2005 17:49

Home Computing Initiative (HCI) Scheme

The salary sacrifice scheme you mention is covered under the Home Computing Initiative (HCI) scheme, which is backed by the DTI.

HCI schemes are enabled by the Government’s 1999 tax exemption on loaned computers which
allows employers to implement a tax-exempt loan scheme for computer equipment for their
employees to use at home.

The key is that it must be a loaned computer, and the kit is not purchased outright by the employee. An HCI scheme is not a Hire Purchase agreement.

Under the salary sacrifice scheme it is open to employers to sell ex-rental equipment to their employees at the end of the lease, which in effect is what many would choose to do. There is however no commitment by the employer that this will be the case.

Combining tax and NIC savings may effectively reduce the cost, for the employee, of obtaining a computer by up to 33% for a basic rate tax payer (22% income tax plus 11% employee NICs) and up to 41% for a higher rate tax payer (40% income tax plus 1% employee NICs). The employer also makes a saving because their NICs are reduced.

PEM offer HCI schemes to clients in conjunction with the IAAITC. In our scheme employees get computer equipment up to £1500 which is leased over a period of three years. I would be happy to discuss the scheme with anyone who is interested.

Jon Stanton
Peters Elworthy & Moore
[email protected]
01223 728 222

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29th Jan 2005 00:02

Salary Sacrifice
The idea of salary sacrifice is one that even the revenue accept as a legitimate way of employees and employers arranging their affairs.

There was a recent story in the Times which suggested that salary sacrifice for pensions was "the greatest tax avoidance scheme of the century" - the following day the treasury accepted that it was perfectly normal - in fact the revenue guidance on disclosure of avoidance schemes for employment products makes it clear that you do not need to disclose this type of arrangement.

In the variant you suggested there will be a small saving of NIC for the employee - but the value of the computer equipment will still be treated as salary and a class 1A NIC liability will arise.

In schemes like the PEM scheme you take further advantage of the letting employees have a computer with a BIK of less than £500pa tax free (ie a cost of £2,500) scheme and so make a much larger saving.

I think both you and PEM should pay me a fee for clarifying that don't you?

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By Anonymous
29th Jan 2005 08:55

Paul, you say
..letting employees have a computer with a BIK of less than £500pa tax free (ie a cost of £2,500) scheme and so make a much larger saving.

Does this mean that if something has a BIK value of less thasn 500 it's tax free?

I've probably read it wrong.!!

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29th Jan 2005 09:09

Paul is correct
So long as the Computer Kit(and only computer kit) BIK is less than £500 then there is no tax or NIC. The annual value of an asset available for private use is 20% of market value when first provided - hence the £2,500 figure quoted.

ie, you can provide your employees with £2,500 of home computer equipment tax free. And that is a lot of computer kit!

I have done exactly that for one of my employees, and with dispensation in place did not even have to complete a p11d.

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29th Jan 2005 09:45

In summary then...
So in summary, the SS scheme will work *provided* the 3rd step, ie transfer of ownership, is not made.

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