HMRC internal manual

Employment Income Manual

EIM21701 - Particular benefits: computers: partial exemption: what computer equipment falls within the exemption: years up to and including 2005/06 only

Section 320 ITEPA 2003

The computer exemption is abolished for 2006/07 onwards. For the tax treatment of a computer provided for private use from 6 April 2006 onwards see EIM21699.

Years up to and including 2005/06

The exemption for computer equipment (see EIM21700) applied:

  • to any computer (including “laptops”) whether used partly for work purposes or wholly privately, and
  • to any associated equipment such as a printer, scanner, modem, data storage device or other peripheral equipment “designed to be used by being connected to or inserted into a computer”, and
  • to software used on the computer,
  • whether the computer was provided to the employee or director themselves or to a member of their family or household.

The exemption did not extend to:

  • line rental, call charges or other amounts paid in respect of a telephone used to connect the computer to the Internet (but see EIM21617) or other computers in any way or
  • computers provided under some arrangements that favour directors over other employees of the employer (see EIM21702).

Whether an item of equipment was a computer was a question of fact. It was usually obvious from the functions that the equipment could perform. A machine that could be used to compute would fall within the definition even if the director or employee used it only for tasks, such as word processing or sending and receiving e-mails that involved little or no computation in the strict sense of the word. However a game playing machine (even one that worked by the insertion of a disk or cartridge containing the game) was not “computer equipment” if it was not also capable of doing computations for the user. The same applied to an MP3 player.

Note that peripheral equipment must be “designed to be used by being connected to or inserted into a computer”. That meant that digital cameras designed for the mass photography market did not fall within the exemption, because they are designed to be used for taking photographs independently of any computer equipment. A computer may later be used to process the images recorded in the camera, and indeed the camera may function as a camera whilst attached to a computer, but that is not usually the purpose of their design. On the other hand a digital camera designed for attaching to a computer to allow video conferencing would fall within the exemption.

Personal Digital Assistants

After the computer exemption was introduced in 1999, the number and availability of devices that could conduct some functions normally associated with a computer grew considerably.

A common example is the Personal Digital Assistant or PDA. The design and functionality of PDAs evolved over time, including with regard to whether or not they have telephone functionality. When considering whether a particular PDA counted as a computer for the purposes of the computer exemption, it will be necessary to obtain full details of the make, model and any telephone functionality, including details of the nature and functionality of any SIM card included in the device.

Developments in PDAs following the penetration of smartphones into consumer markets from the late 2000s mean that many modern consumer PDAs are now likely to be smartphones. But this will not apply to devices that are solely PDAs, See EIM21779 for treatment of smartphones.