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HMRC internal manual

Employment Income Manual

Deductions from general earnings: the benefits code: example of deduction from benefits charge

Section 365 ITEPA 2003

An employer provides an employee with a laptop computer to be used for carrying out theduties of his employment. The employee is also allowed to use the laptop for his ownpurposes. He estimates that 40% of its use is for his own purposes. The laptop is neverused concurrently for work and private purposes. When it was provided the laptop had amarket value of £4,000.

The earnings charge, computed in accordance with Section 205(3)(b) ITEPA 2003, is 20% ofthe market value of the computer when it was first provided to the employee, see EIM21617. Section 365 ITEPA 2003 permits a deduction from earningsto the extent that a deduction would have been permitted if the employee had incurred thecost of the benefit out of his own emoluments, see EIM31615.

The calculation of earnings for 2006/2007 onwards is as follows.

Annual value of the computer 20% x £4,000 £800  
Less business use (60%)   £480  
Net taxable earnings   £320  

Note that this example relates to 2006/07. Until 2005/06, Section 320 ITEPA 2003 exemptedthe first £500 of the cash equivalent of the benefit of a computer provided by anemployer to an employee. See EIM21699. The calculation for2005/06 and earlier would have been as follows.

Annual value of the computer 20% x £4,000 £800  
Less exemption   £500  
Cash equivalent of benefit   £300  
Less business use (60%)   £180  
Net taxable earnings   £120  

Note also that there is no need to calculate the benefit of the computer at all if privateuse of it by the employee, and members of her family or household, is not significant. See(This content has been withheld because of exemptions in the Freedom of Information Act 2000) . The figure of 40% privateuse in the above example is “significant”.