|
In the 2006 Budget, the Chancellor announced that the limited statutory exemption for the provision of computers for the use of employees was to be withdrawn from 6 April 2006. The tax exemption, as set out in section 320 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), applied to computers and related equipment, even if they had no business use at all, but was limited to the first £;500 of taxable value in a year.
The remaining "workplace" exemption, which applies broadly to "accommodation, supplies and services" provided by an employer for the use of employees, also applies to computers, other computer equipment, and to related services such as a telephone line and Broadband connection. Whether the exemption applies depends largely on the extent to which employees are permitted to make private use of the equipment.
If the exemption does not apply, the cash equivalent of the computer, computer equipment and any telephone services for which the employer contracts are reported in Section L Assets placed at the employee's disposal, on from P11D.
The cash equivalent is the "cost of the benefit", less any part of that cost made good by the employee. The "cost of the benefit" is the higher of
- the "annual value of the use of the asset", and
- the annual amount paid by way of rent or hire charge for the asset,
plus the amount of any "additional expense".
The "annual value of the use of the asset", in the case of a computer or computer equipment, is 20% of its "market value" when it was first provided as a benefit (even if that was not to the employee currently receiving it as a benefit). In general, the market value in this context is what the employer originally paid for it.
Any "additional expense" covers, for example, the costs of enhancements, repairs and maintenance contracts. However, it is limited to the additional costs that the employer has incurred only because of providing it for the employee, i.e. the expense that would have been saved if the employer had not provided the benefit.
The employer may apportion the cash equivalent in a "fair and reasonable" manner if the computer and other equipment
- is shared between two or more employees
- is shared between a number of employees and lower-paid employees
- is also used by the employer
- is also hired out to third parties
- is provided only for part of a tax year.
However, where the computer and other equipment is reportable because it is made available for the employee's private use, apportionment is not permitted in respect of the mix of private and business use made by the employee. The full cash equivalent must be reported, even if no private use is ever made. It is up to the employee to make a claim tax relief on the grounds that a proportion of the asset's use was "incurred wholly, exclusively and necessarily in the performance of the duties of the employment". The employer must also pay Class 1A NICs on the total amount reported, unless the employer knows that the equipment has had no private use at all and the employee can successfully claim full tax relief.
...back to 8 June 2006
|
For Payroll and Human Resource Professionals
