TT59: Staff Home Computers

January 22, 2005

Sometimes, just sometimes, the Chancellor is kind with benefits in kind!

Topical Tips 58 highlighted a tax efficient benefit enabling both employers and employees to save money by altering the employee’s remuneration package to include an element of child-care. Amazingly there are other significant benefits that can be enjoyed in a similar manner!

This issue of Topical Tips deals with a way of providing computer equipment for staff to have at home that can save them half the cost of the computer and save the employer money as well!

Encouraging the development of IT skills

The Government has set the rules on benefits in kind so that employers can provide free computer equipment to staff (up to quite a high value) at no tax cost. This is primarily to encourage the development of Information Technology skills amongst the general population, but it also recognises the fact that employees often undertake work from home and it would be unfair to tax them if the employer made computers available for this purpose.

How does this IT tax exemption work?

If an employer makes an asset available for private use by an employee then generally a benefit arises that is taxable on the employee (and Class 1A National Insurance Contribution (“NIC”) is payable by the employer). Unless the asset is covered by special rules (e.g. company cars) then the benefit is calculated as being 20% of the market value of the asset when first made available, plus any other costs e.g. maintenance/upgrades. However, if the asset is computer equipment and software, then the first £500 of the benefit is exempt – so a computer worth £2,500 is tax-free! (£2500 x 20% = £500 benefit.)

Both employer and employee can save

Take as an example a computer with software worth £1,200 plus VAT:

  • Normal cost to an employee is £1,410 (including VAT)
  • Cost to a VAT registered business is £1,200 after reclaiming the VAT.
  • The computer equipment is loaned to the employee for two years.
  • Employee takes a salary sacrifice of £50 per month to compensate the company for the cost of the equipment (hence the computer does not cost the company anything).
  • Employer saving £1,200 x 12.8% NIC = £153.60
  • Employee saving £1,200 x 40% tax and 1% NIC, plus £210 VAT = £702.00

In other words the employer saves the NIC on the salary sacrifice and the employee saves the tax and NIC that would have been paid and does not have to pay the VAT.

At the maximum the computer equipment and software can cost up to £2,500 with savings of £320 for the employer and £1,462.50 for the employee!

Barnes Roffe Topical Tips

  • Consider this scheme as it could improve staff retention, satisfaction and IT skills
  • As well as hardware and software, computers can include printers, scanners, modems, disks and any other peripheral devices designed to be used by being inserted into or connected to a computer
  • Staff can choose the combination of equipment that suits their home needs
  • The equipment is on loan to the employee and must not be a gift
  • Directors cannot be subject to more beneficial arrangements than staff, but not all staff need to be included in the scheme
  • The scheme cannot include the home internet connection cost
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