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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Particular benefits: computers: partial exemption: abolished 2006/07

Section 320 ITEPA 2003

The partial computer exemption in Section 320 was abolished with effect from 6 April 2006. See EIM21700 for details regarding the exemption that applied for years up to and including 2005/06.

Arrangements entered into before 6 April 2006

Where a computer was provided to an employee for private use under the Home Computing Initiative (see EIM21700), the arrangement typically lasted for up to three years. An employee who had a computer provided for private use before 6 April 2006 is not affected by the abolition of the exemption. Consequently for arrangements entered into before 6 April 2006, HMRC accepts that the exemption will continue to apply until that arrangement ends.

This includes schemes entered into shortly before 6 April 2006, under which an employer was committed to provide a computer to the employee, but for reasons beyond their control the employee could not take physical possession of the computer until on or soon after 6 April. To qualify for the tax exemption in these circumstances the employer and employee must have agreed and put in writing the terms on which the computer was to be made available. For example specifications of the equipment, the cost/value and details of the salary/tax impact on the employee before 6 April 2006. But this does not have to be a formal hire agreement.

Replacement under warranty

The transitional rules also apply where a computer provided under an arrangement in place before 6 April 2006 has to be replaced under warranty, as long as the replacement computer is in all relevant respects the same as the original. With the fast pace of change in computer technology it is unlikely that a replacement computer provided one year into a three year arrangement will be precisely the same as the original, but as long as any upgrade is provided on a like for like basis at the behest of the supplier, or under a warranty arrangement (e.g. the supplier sees a replacement as the cheapest way of meeting an obligation to repair the computer within a warranty period) and not at the request of the employee, for the purpose of the exemption the replacement computer may be treated in the same way as the original computer.

The same applies to any annual software renewal provided as part of an arrangement entered into before 6 April 2006. It is almost inevitable that the software provided year on year will include an element of improvement or upgrade relative to the previous year. If the upgrade represents the standard software upgrade of the same software which was provided as part of the original agreement, and not at the employee’s request, it will continue to be covered by the exemption. For example, if the agreement is to supply a computer with Word or Powerpoint, accepting the 2007 updated versions on a computer supplied under an agreement entered into before 6 April 2006, does not constitute a benefit.

Arrangements entered into in 2006/07 onwards

For arrangements entered into on or after 6 April 2006 to provide a computer to an employee for private use, or for an upgrade requested by the employee on or after that date to a computer and/or software originally provided before 6 April 2006, the Employment Income tax treatment is the same as for any asset provided by an employer for private use -

  • if a computer is given to the employee, this represents a benefit chargeable under either Section 62 or Section 203 ITEPA 2003 (see EIM21640); or
  • if a computer is loaned to an employee, this represents a benefit chargeable under Section 205 ITEPA 2003 (see EIM21630).