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<b>Budget 2006:</b> Benefits in kind ' a range of changes! By Rebecca Benneyworth

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23rd Mar 2006
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Childcare scheme
The tax free scheme under which employers can help employees with the cost of childcare which was introduced a year ago sees a boost in the Budget, with the limit on childcare costs which are tax free when paid by the employer rising to £55 per week from 6 April. The 10% rise in help for employees will probably be met by employees concerned taking a reduction in salary to meet the additional costs, but this would provide a saving of £1.65 per week for employees who are basic rate taxpayers, provided they don't claim childcare help through tax credits. Many employees who are already entitled to help with childcare costs through the tax credit system find they are worse off through accepting this type of package, so this change will not affect them.

Grants for employers to set up workplace nurseries
Where an employer is willing to provide on site nursery care for employees to use, there is no limit to the tax free amount that employees effectively receive. This is, however, a very expensive option and is beyond the reach of smaller employers. It has been announced that grants of up to £8 million will be available in 2006-07 and 2007-08 for smaller employers to help meet the capital costs of setting up workplace nurseries. Government will consult to see how best to distribute this money.

Company car tax
The lowest emissions rate, which attracts tax at 15% of list price will reduce to 135g/km of CO2 in 2008-09. This will produce a 1% of list price increase in benefit in kind for most drivers. However, a new 10% band of tax charge will also be introduced for drivers of vehicles which emit no more than 120g/km CO2. This will also commence in 2008-09. These cars currently attract a 100% first year allowance when purchased new, but this is due to expire in March 2008.

Car fuel benefit
The base benefit in kind applying to the provision of free fuel for private motoring to employee with company cars is frozen at £14,400.

Computers loaned to staff
The Home Computer Initiative (HCI) scheme was launched several year ago, to encourage employers to provide free computers to staff for them to use at home for private purposes. No tax is due on this benefit in kind, provided it is available to all staff on similar terms, and the notional benefit does not exceed £500 per annum. This tax exemption is now to be withdrawn from 6 April 2006, and employees will be taxed on the benefit arising from the provision of the computer, at a rate of 20% of the cost of the machine. Employees could, however, take over ownership of the machine by paying the employer the current market value for it.

Mobile telephones
Mobile phones provided by an employer (with the contract in the name of the employer) are not taxable on employees. From April 2006 this tax exemption is to be restricted to one phone per employee.

VDU operators ' eye tests and corrective spectacles
Where employees use computers regularly for work, employers provide eye tests and if necessary pay for spectacles for affected employees. Where this is achieved through the employer making the arrangements, no tax charge (or NIC charge) applies to this benefit in kind. However, where the benefits are provided through the use of vouchers, there is technically a tax and NIC liability. Not only will this be dealt with by new legislation, but HMRC will acquire powers to deal similarly with other anomalies where the method of provision affects the tax treatment on employees.

Comment
There are no particular surprises in this package of measures, but employers and employees who have just entered into Home Computer Schemes may be a little disappointed that this scheme has been terminated. It would seem sensible, however, to limit the number of tax free mobile phones to one per employee. I fully expected an increase in the base level of benefit for car fuel recipients, so the fact that it has been frozen is a pleasant surprise, although there are few beneficiaries

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