Tax Update - Computers loaned by the employer

When the Finance Act 2006 swept away the exemption for the first £500 of the cash equivalent of the benefit associated with a computer loaned by an employer to an employee, with effect from 6 April 2006, there was much concern about whether employees might find themselves with an unexpected tax charge.

From April 2006 onwards a computer loaned to an employee is treated in the same way as any other asset. This will usually mean that the taxable benefit for private use is 20% of the original market value of the computer.

It is worth remembering that if the computer was first provided before 6 April 2006, it continues to be covered by the exemption until such time as it is replaced. This means those who entered into the home computer initiative scheme prior to that date are not affected.

A 'Blackberry' or similar is regarded by Revenue & Customs as a computer rather than a mobile phone - see the Revenue's Employment Income Manual at para EIM21701.

If the computer is provided solely for business use and any private use is 'not significant', the computer is exempt from a benefit charge - see para EIM21613. This exemption has been in place since 2000 and is unaffected by the abolition of the computer exemption. The term 'not significant' has now been given more clarity by an updating of the Employment Income Manual, which can be found on

It is not a defined term in statute but the manual says where: 'The employer's policy about private use is clearly stated to the employees and sets out the circumstances in which private use may be made (this may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences if this policy is not followed), any decision of the employer not to recover the costs of private use is a commercial decision, for example based on the impractical nature of doing so, rather than a desire to reward the employee, HMRC should accept that the test is met.'

Most importantly, the manual goes on to explain that the proportion of private usage will not necessarily be the deciding factor.

It should be considered in the context of the employee's duties and the necessity for the employee to have the equipment or services provided in order to carry out the duties of the employment in the first place.

There are a number of useful examples in the manual and it is worth reviewing these if you are advising a client or an employer in this area.

R&D specialist units Revenue & Customs has opened seven new specialist research and development (R&D) tax credit units across the country to seek to improve the ability for small and medium-sized enterprises (SMEs) to make claims. There are two forms of R&D tax credits. Larger companies can get tax credits up to 125% on qualifying expenditure and SMEs can get up to 150%. In addition, loss-making SMEs can surrender the tax losses for cash bringing in up to 24% of qualifying expenditure. SMEs with significant claims will have their whole tax return reviewed by the new specialist units. If the claim is minor it is likely to remain at the existing tax office. Full details can be found on and in Tax Bulletin 85.

The government seems to be committed to R&D tax credits and would like to offer the surrender option to larger companies, although this requires European approval. Interestingly, the recent tax improvement suggestions of the Tax Reform Commission suggested the R&D tax credits should be sacrificed in favour of simplicity.

Source: Revenue & Customs webposting dated 2 November 2006.

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