The facts
What is a computer salary sacrifice scheme?
The benefit, usually offered via a flexible or voluntary benefits scheme, enables employees to pay for a computer, laptop or tablet out of their gross pay, resulting in tax and NI savings for the employee and NI savings for the employer. However, unlike other tax-efficient benefits, such as bikes for work, which receive a full tax break, a computer is taxed on 20% of its value every year.
Where can employers get more information?
Information about how computer salary sacrifice schemes work can be found on provider websites. HM Revenue and Customs’ website gives more details on the tax treatment of computers.
Who are the main providers?
Providers include AV Corporation, BHSF, Clarkwood Enterprise, Computingscheme, Computershare Voucher Services, Exertis Micro-P Employee Benefits, Let’s Connect, P&MM Employee Benefits, Stormfront and Techbenefits.
Statistics
4% of employers offered computers as a core benefit to all staff in 2013, compared with 3% in 2009
3% of employers offered computers through a flexible benefits scheme in 2013
5% of employers offered computers as a voluntary benefit in 2013
Source: The Benefits Research 2013 , conducted in March 2013. Total respondents: 561
The benefit, which is usually offered through a flexible or voluntary benefits scheme, enables employees to pay for a computer, laptop or tablet and related accessories, such as printers and cases, out of their gross pay. This results in tax and national insurance (NI) savings for the employee of up to 12% for basic-rate taxpayers and 2% for higher-rate taxpayers, as well as NI savings for the employer.
However unlike other benefits that use salary sacrifice arrangements, such as bikes for work , which receive a full tax break, a computer is taxed on 20% of its value every year. By contrast, under the home computing initiative (HCI), which was scrapped by the government in 2006, employer-provided computers received a 100% tax break.
At the moment, if a 40% taxpayer selected a laptop costing £1,000, their annual benefit-in-kind tax (on 20% of the value, or £200) would be £80. For this tax treatment to apply, the employer must own the equipment and fund the cost of it on behalf of employees, who then pay the employer back over a fixed period, normally between two and three years.
Given that the tax break is less than it was under HCI, employers are keen to use their bulk purchasing power to secure discounts on the cost of the equipment. Employers can achieve discounts of 3% to 5% off the retail price, and further savings could be available if extended warranties and insurance cover are taken out on the equipment.
Manageable costs
Another attraction of a computer salary sacrifice scheme is that it allows staff to spread the cost of computing equipment across monthly payments without having to obtain credit. However, some providers will require employers to fund the cost of a consumer credit or hire agreement if there is not one in place.
Although most providers do not charge for setting up a scheme, with many making their profits from selling accessories and insurance cover, employees’ orders may be subject to administration and delivery fees.
Some employers choose to offer computers to staff in a straightforward discount scheme, rather than through a salary sacrifice arrangement. Although there are no tax and NI savings, these arrangements allow for shorter repayment periods and open up the benefit to low-paid workers who cannot participate in salary sacrifice.
Like all benefits, computer salary sacrifice schemes need to be communicated effectively to ensure staff understand: the impact the benefit has on their take-home pay; the tax treatment and benefit-in-kind liability; and how the hire and payment agreement between them and their employer is regulated.
For example, although most agreements will be set up so that the cost of the computer is paid off by the end, staff still may have to pay off any outstanding P11D balance before they can take the equipment from their employer.
It is also important to reiterate an employee’s obligations if they leave the organisation before the agreement ends. Normally, they will be expected to settle any remaining payment out of their net pay.
A well-thought-out computer salary sacrifice scheme is cost-effective way of meeting employees’ growing demand for new technology.
In my exeirence a lot of the computer schemes are not offered via salary sacrifice. These arrangements work with the employee being loaned funds to acquire the computer which is repaid out of net salary.
I have dealt with Lets-Connect in the past and have found their service to be dreadful. After the initial flurry of orders and deliveries they essentially put the ‘phone on hold and stopped answering their emails. We had employees with damages sets and useless laptops who couldn’t get in touch to report the goods faulty. Some of them are still fighting their case over a year later.
Never again!
Way more horror than any foreseeable benefits.
The article entitled “Daniel Gilborn: Computer scheme returns” (dated 27 March 2014) seems to contradict the point in this article around the tax saving to employees.
Mr Gilborn says the benefit should be treated as a Benefit in Kind and so will be taxed on the full value through the P11D. However, in this article you mention the employee will be taxed on 20% of the full value.
Could you please clarify this?
Thanks
Any update on the point raised on 09/04/2014?
Contrary to what providers say, the home technology benefit is classed as a benefit-in-kind by the HMRC and thus, will be taxed via P11D. The only way am employee can avoid a tax liability is by returning the equipment at the end of the hire term, something employees are highly unlikely to do.
Could you please provide a definitive answer on this?
There is no need for confusion on Technology Benefits-in-kind. There are a number of factors for you to consider in running any employee benefit in terms of your PAYE and reporting obligations.
1.
Determining the correct Asset Treatment for Tax & Reporting Purposes. HMRC will confirm:
> That the method of reporting a benefit-in-kind is acceptable – P11D, etc.
> The rate at which a non-cash benefit in Kind should be accounted for is correct
2.
Salary Sacrifice – Employers are not obliged to consult with HMRC on variations to employees’ terms and conditions and are not obliged to tell HMRC when they first offer a new benefit-in-kind. But, it is open to employers, when a salary sacrifice has been put in place, to ask HMRC to confirm the correct tax treatment of the arrangement.
3. HMRC can’t confirm your salary actual sacrifice agreement, as it is an arrangement covered by the Employment Rights Act 1996.
Packages of indemnified advice are available for Salary Sacrifice arrangements, Benefits in Kind and employee taxation on the above. Such advice is always bespoke, as the application of the correct tax treatment is dependent on your accounting processes and procedures.
In terms of running a scheme, the determination of arrangements is now really well documented because guidance was simplified to support the implementation of Real Time Information (RTI). The rules are now clear to help employers meet their obligations and mitigate risk. Here is the Governments guidance:
https://www.gov.uk/expenses-and-benefits-a-to-z
Specifically,
Computers: https://www.gov.uk/expenses-benefits-computers-loaned-to-employee
Mobile: https://www.gov.uk/expenses-and-benefits-mobile-phones
These arrangements assume an ongoing loan of equipment. So at the end of a benefit term, employers need to consider the options that arise from granting ownership of assets. As per this guidance:
http://www.hmrc.gov.uk/manuals/eimanual/eim21650.htm
Put simply, this requires employers to make the same valuation of end of term arrangements as it makes during the term of benefit.
For the avoidance of any doubt, HMRC do not consider these arrangements as “Saving Tax”. Further the use of a salary sacrifice is a ‘red herring’ in considering employer obligations and valuation of arrangements.
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If the employer owned computer has incidental private use, then it’s exempt from benefit tax. If it’s not, then it’s subject to BIK tax at 20% of the value when it was first loaned or the rental payments, if higher.
A salary sacrifice can be used to fund all or part of it.
At the end of the loan term, if the employer owned computer is given to the employee, then the value of that transfer will create a further BIK liability based on the value of the equipment at the time of transfer. The computer may not be worth much depending on its age and condition.
VAT on salary sacrifice related benefits changed from Jan 2012.
All salary sacrifice is now treated as consideration for the associated benefit which means that where the benefit is liable to VAT and input VAT is recoverable, output tax will be due.