UK Treasury Dismisses Employee Computer Tax Fears

by Jason Gorringe, Tax-News.com, London

03 May 2006

The UK Treasury has dismissed reports that employees using a business computer for personal use will be hit with a new tax.

The concern follows the abolition of the Home Computing Initiative - a tax break allowing employees to buy computer equipment cheaply - in Chancellor Gordon Brown's 2006 Budget.

Under new rules inserted into the 2006 Finance Bill, debated in the Commons yesterday, computers used for "significant" non-business purposes must be treated as a benefit in kind and will therefore attract income tax for employees and additional national insurance contributions for employers.

Tax experts have calculated that an employee on the higher tax rate could face a tax bill for GBP160 a year on a computer bought for GBP2000, while companies would face having to pay around GBP51 extra.

"If an employee needs computer equipment in order to perform the duties of their employment, that equipment will not give rise to a tax charge providing any personal use made of that equipment is not significant," the Treasury confirmed in a Financial Times report.

It is thought that an additional GBP2.2 billion in revenues could be generated over the next three years if the Treasury applies the proposed rules strictly.

However, according to The Times, Treasury sources have revealed that almost all private use of a business computer will be classified as "insignificant" and will therefore not be liable for tax.

“The chances of anybody having to pay a tax charge on personal use of a business computer are virtually zero," a Treasury insider was quoted as saying by the paper.

To clear up the confusion surrounding the issue, the opposition Conservative Party, along with representative bodies such as the Chartered Institute of Taxation, are pushing the government to include additional guidance alongside the new legislation in order to clarify the situation for employers and employees.

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