When the exemption for employer provided computer equipment in s.320 ITEPA 2003 was unexpectedly terminated in the 2006 Budget, there were concerns that this might lead to an unexpected benefits charge for employees in respect of private use of employer's computers and peripherals.
HMRC replied that providing that private use of an employer's equipment was insignificant when equipment was provided for business purposes, no benefits charge would arise.
This response was in line with the wording of s. 316 ITEPA 2003 "Accommodation, supplies and services used in employment duties", which broadly provides an exemption for the private use of such items where it is insignificant, and the sole purpose of the provision of the asset or services is to enable the employee to perform the duties of the employee's employment.
There was a certain amount of hysteria in the press after the 2006 Budget as people were rather unsure what "insignificant private use" might actually mean in practice in relation to computers. To be fair, PAYE inspectors once tried to tax tea and coffee as benefits in kind, so the reaction was understandable.
In May, I wrote an article suggesting that HMRC probably intended to take a similar approach to the one that they adopt for what are termed "trivial" benefits. Given the "red tape" involved in trying to police "incidental" private use, this seemed the most plausible outcome.
I also suggested that given that employers employ employees to work and not play on computers (unless of course they are employed in the gaming industry), it would probably be sensible for employers to obtain a written undertaking from employees to prevent excessive private use in cases where they considered that it was necessary.
Now I am pleased to note that HMRC have indeed taken the pragmatic and practical approach that I had hoped, and in August, they updated and added new guidance to their Employment Income Manual to deal with the potential problem of incidental private use of assets and services.
EIM21613 (as updated) "Particular benefits: accommodation, supplies and services: meaning of not significant use for private purposes" explains what is meant by the phrase "Not significant private use". It says:
"Not significant" is not defined in statute.
However 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), and 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, you should accept that the test is met.
Removed from this updated page is the requirement "for the employer to make reasonable checks to ensure that the employer's policy is followed". This would be pretty unworkable in most cases involving computers.
The revised guidance says that employers are not required to keep detailed records. The key thing that counts is the use of the asset or service in the context of the employee's duties and the necessity for the employee to have the equipment or services provided to carry out those duties.
The manual gives four examples of situations where private use of a computer is treated as incidental. In the first the employee does not need a computer to do her job, and she does not have any duties of employment outside her employer's premises. There is a taxable benefit in kind purely by virtue of the fact that the employee concerned has an employer provided pc at home.
In the other three examples, the employee cannot work without a computer. As in those circumstances, the primary purpose of providing the employee with a computer is for work, then it stands that any private use is secondary, even if as the examples show private use often exceeds business use.
HMRC’s new examples:
"1. Retail assistant
A shop assistant works for a large retail employer and is loaned a computer by the employer for personal use at home. The duties of the employment do not require the employee to work at home except on infrequent occasions when the computer may be used to produce a spreadsheet of weekly or monthly sales, compared with sales targets. The employee regularly uses the computer to order online weekly groceries and to book holidays.
The sole purpose for providing the computer was not for business use and the private use is significant relative to the business use of the computer. The exemption in s316 does not apply.
2. Utility engineer
An engineer for a large utility company is provided with a computer for use at home by their employer. The list of jobs for each working day is sent overnight via an email from the employer. The engineer is required to log on first thing every morning to download the details of the work for the day. This may take no more than five minutes. The computer is often used to order online weekly groceries and to scan Ebay for bargain purchases. Private use may be for an hour or more each day.
The employer's sole purpose in providing the computer was to enable the engineer to download the work roster for each day. His use of the computer for this purpose is an essential duty of the employment – it is the sole reason that the employer provided the computer and it is the primary reason for the employee to have the computer available at home. Private use of the computer is secondary to the use for work purposes, even if the actual amount of time spent on private use exceeds that on business use. Consequently in this example private use is not significant and the exemption in s316 applies.
3. Management consultant
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.
The 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.
The amount of time the laptop is used by the consultant for business use during the day is probably about the same as that spent on it in the evening and at weekends by her children. But 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 exemption in s316 applies.
4. Financial adviser
An employee for a financial advisory firm chooses to work at home every Friday. The employer provides a laptop computer for the employee to take home. It is not an essential part of his job to work from home on Fridays, but since the employer agrees to this working pattern, the laptop is required to enable the employee to do his job. The amount of time spent on the laptop for business use on Fridays is roughly equal to time spent at other times of the week on personal use of the laptop.
The sole reason that the laptop is provided is to enable the employee to work from home on Fridays. It is essential for this purpose. Private use of the laptop is secondary to this primary purpose and is therefore not significant. The exemption in s316 applies."
It is good when common sense prevails, and one hopes that these examples make the rules as clear as it is possible to make them. A similar approach has been taken to employee use of employer provided broadband, telephone lines and other equipment and services. I am covering these in a separate article as these items have raised considerable concerns in the past months amongst members.
Nichola Ross Martin FCA BA (Hons)