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AIA

The home computing initiative and benefits in kind. By Rebecca Benneyworth

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30th Apr 2007
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Karen’s question – Can HCI be a benefit? asks about the old (pre 6 April 2006) benefit rules for computers loaned by employers, and how the benefit in kind rules work.

The old HCI (Home Computer Initiative) scheme was withdrawn in the 2006 Budget, with effect from the new tax year. This was a controversial move, but HMRC were concerned about individuals “abusing” the scheme. The problem lay in the definition of a “peripheral device” which was sufficiently loose to allow employees to benefit from i-pods and digital cameras under a provision intended to bring tax free computers to the “ordinary person”. In reality, most of the beneficiaries were ordinary employees, such as checkout operators at Tesco, who relaunched their scheme shortly before the change.

Irrespective of this, the scheme was withdrawn from 6 April 2006, so that any employees who had the benefit of a loan computer before that date are not taxed on it, and any who participated after that date would be taxed at 20% of the cost of the equipment when first provided as a benefit – for all of the years in which it was provided. Note that the 20% is not a depreciation factor, and if the computer proves very long lived, the employee will pay tax on more than the cost of the machine – albeit over a number of years.

Karen’s question, however, probes a deeper issue. The common arrangement for this type of benefit is that the employee makes a salary sacrifice of the amount needed to pay for the lease cost of the computer. Normally leases of this type are written for three years, and as the company is permitted to recover the VAT on the lease payments, the gross salary sacrifice is the net of VAT amount of the lease payments. In Karen’s case this is more than the maximum permitted annual tax free benefit of £500 under the old rules.

In simple terms, Karen’s approach should be to calculate the benefit on the computer using the normal rules. There is no specific provision requiring the salary forgone to be regarded as the taxable amount, so provided the normal calculation produces a benefit of no more than the limit of £500 her client is safe.

However, the change in taxation of computers gives rise to more complex implications. The abolition of the tax free amount also exposes a potential benefit on the privet use of work computers. Statutorily, private use of a computer provided for work purposes is not taxable provided the private use is insignificant. The problem arise because employers probably have no idea whether the private use of a work machine is insignificant or not, particularly when the computer is provided at the employee’s home. However, this issue was dealt with by guidance issued in August, which permits the employer to largely disregard the private use of any computer provided and used as a necessary part of the employee’s duties. For more guidance see the Employment Income Manual.

At the same time as the computer change, mobile phones provided for private use were also curtailed. Once again, there is a provision permitting those phones provided before the change on 6 April 2006 to remain tax free. Phones provided after that date, including the replacement of phones provided before are subject to tax under the new rules, which allow one phone to be used for private use tax free. Any additional phones, or phones provided to a member of the employee’s family are taxed in full. This however, does not apply if the second phone is used wholly for business calls.

With P11D’s on the horizon, employers will need to be sure that they have appreciated those changes!

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By AnonymousUser
08th May 2007 17:01

Privet use of work computers
Rebecca comments that 'The abolition of the tax free amount also exposes a potential benefit on the privet use of work computers'. It certainly does. Inspired by gardening programmes presented by Irishmen called Dermot (but spelt Daioirmoaaiedh), I regularly use my work computer as a 'found object' to break up the organic lines of my privet hedge with a rectilinear non-organic intrusion. Now that the potential benefit in kind has been exposed, my organic and non-organic balance has been disrupted by a purely hypothetical concept, and it looks all wrong. I'm going to rip all the privet out and plant beech...

Mike (who is well aware of what a hostage to fortune this is...)

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