EXPLANATORY NOTE

1. This clause exempts, from 6 April 1999, the first £500 of annual benefit to an employee where computer equipment is lent free or at low-cost by the employer. Only any cash equivalent in excess of £500 will remain chargeable.

2. This exemption will more than cover a computer worth £2,000 because the annual charge is generally on 20% of the value, that is, £400 where a £2,000 asset is provided. The extra £100 of exempt cash equivalent will enable a slightly more expensive (up to £2,500 in value) computer to be provided or cover up to £100 of related expenses met by the employer in connection with a computer worth £2,000. Alternatively, where the employer rents the computer equipment and the tax charge is measured by the annual rental, the exemption will cover up to £500 rental.

3. This exemption will help encourage wider computer access and experience throughout the employed workforce.

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4. Subsection (1) introduces a new Section 156A of the Taxes Act which brings in the exemption.

5. New Section 156A (1) and (2) provide that the exemption is to apply to computer equipment made available to employees (or to members of their family or household). The exemption will not apply where the equipment is confined to directors (or their family or household), or made available to them on more favourable terms than to other employees.

6. New Section 156A (3) provides that the benefit in kind charging provisions are only to apply to any excess over £500 of the `cash equivalent`.

7. New Section 156A (4) and (5) define computer equipment to include modems, printers and other peripheral devices, but excluding telephones.

8. Subsection (2) makes a consequential change to a reference in Section 154.

9. Subsection (3) provides that the clause takes effect from 6 April 1999.

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10. Employees earning over £8,500 are generally taxable on benefits in kind which they receive by reason of their employment. So where an employer makes an asset, such as a computer, freely available for an employee’s home use, an income tax charge will arise.

11. The amount chargeable each year, called the `cash equivalent`, will generally be 20% of the asset’s market value, plus any related expenses which the employer meets. So where a computer with a market value of £2,000 is made available free by the employer for the employee’s private use, the income tax charge on the benefit would be on £400. Where the employer rents the equipment the rental, if higher, will be substituted for the 20% annual value charge.

12. This clause will remove the tax charge in such circumstances for up to £500 annual cash equivalent. The normal taxing rules will apply on the cash equivalent above £500. The exemption will not be given if the equipment is confined to directors (or their family or household) or made available to them under arrangements which are more favourable to them than to other employees.

13. The introduction of a tax exemption on the benefit of computer equipment lent by employers to employees in Sweden has led to a significant increase in the provision of computers to households.

(A) Employer lends a computer, which it owns and which has a market value of £1,900, to an employee for free. The cash equivalent is 20% of £1,900, ie £380. This is within the £500 exempt amount, so the benefit is fully exempt.

(B) As in (A), but the computer’s market value is £3,000, so the 20% annual value charge is on £600. Under this clause £500 is exempt leaving only £100 taxable.