Only “private use” of employer-provided computers is taxable. We look at what this means in practice.
We reported back in October 2006 that the Government has withdrawn the tax relief for home computers where that computer is used for “significant private use”. We examine what is meant by “private use” and where HM Revenue & Customs may treat deem private use as “insignificant” and therefore not a taxable benefit.
To be exempt from a tax charge, a computer must:
- be provided at work and the employee’s private use of it must not be “significant” (this covers sending private emails at lunchtime or surfing internet sites after work); or
- be intended for home use, or work away from business premises, provided with the sole purpose of allowing the employee to perform his or employment duties. Once again, any private use must not be “significant”.
Defining “Private Use”
There is no legal definition of “private use” set out in the tax legislation, but HMRC do provide guidance in its’ Employment Income Manual. In their opinion, where a computer is provided primarily to carry out duties at home, it is unlikely that the private use of the equipment will be significant when compared to the principal reason for providing the computer. Accordingly, no taxable benefit arises.
However, HMRC require employers to provide adequate documentation to justify the provision of the computer for business purposes. However, HMRC does not expect employees to maintain records of private use and work use.
We have set out below some examples which seek to illustrate common situations when a computer might be provided and whether private use gives rise to a taxable benefit. However, the important point to bear in mind is that the primary reason for the provision of the computer must be for business purposes.
IT Consultant – Stuart is employed as an IT consultant. He works both at home and in the office. He is provided with a Company laptop which he uses when he works from home to run diagnostic checks on the Company’s IT systems as well as acting as a trouble-shooter for employee IT problems. Stuart and his family also use the laptop in the evenings and weekends for checking sports results and booking family holidays (which his employer permits).
The primary reason Stuart is provided with a computer is for work. The private use is secondary and is not deemed to be significant. The computer is therefore tax-exempt.
Management consultant – Sue, a management consultant working for a consultancy firm works largely from home. She spends a high proportion of her time visiting customers, and occasionally attends a meeting at the employer’s offices.
Sue’s employer provides her with a laptop computer for business use because on the days when she works away from the office, access to a computer is still absolutely essential to her job. Occasionally she uses the laptop for private purposes and she has two children who are allowed to use the laptop for accessing the internet to help with their school homework and for playing computer games and downloading music.
However, the sole reason that she has been provided with the laptop is for business use, for which purpose it is essential, and its primary purpose is for the business use. The private use is secondary to this and is therefore not significant, regardless of the amount of time spent on private use. The tax exemption applies.
HR Manager – Sally, an HR manager for a large supermarket chain chooses to work from home on Monday and Tuesday each week. Her employer provides a computer to enable her to do this. It is not essential that she works from home to perform her duties and she could go into the office to do so. In these circumstances, if any private use is deemed (by HMRC) to be significant, a taxable benefit arises.
It becomes even more difficult to determine whether private use is significant when an employee is given a Blackberry or other similar device (which are treated as computers for these purposes, including the telephone facility). It might be argued that if an employer provides a Blackberry to enable the employee to read and send emails and make and receive calls in the course of his duties, then an incidental personal call or email will not give rise to a tax charge. However, the position may be different if the employee makes numerous personal calls or sends personal emails or accesses the internet which together significantly outweighs the business use for which the device was provided. Unfortunately, HMRC has not yet issued any guidance on this area.
For employers, defining what “significant private use” is difficult and HMRC guidance has not set out clear guidelines in this area. That said, if the primary purpose of the home computer is to carry out the duties of employment, it would seem that no taxable benefit arises, although the circumstances of each case will need to be considered carefully.
If you would like further information on this issue, please contact Guy Abbiss, Tracey Horne or Colin Kendon.