You've introduced homeworking for your staff. They'll need PCs which you're happy to provide, subject to them making a contribution for personal use. But would it be more tax efficient for employees to buy the equipment and you reimburse them?
Use of an employer-owned asset
As a general rule, employees are taxed on perks of their job. For example, if an employer provides its staff with a PC and printer for home use this would count as a taxable perk. Not only will the employee be hit with a tax bill for this, but the employer has to pay Class 1A NI on its value. However, both the tax and the NI can be reduced or even wiped out.
Use of asset charge
The first step is to calculate the taxable amount of the perk. This is 20% of its cost, including VAT (even where the employer reclaims it), plus any running expenses.
Example. Acom Ltd provides its reps with laptops and printers costing £900 (including VAT). It also pays for printer supplies, paper and ink at a cost of £100 per year. The basic annual taxable perk for each employee is £250, i.e. £900 x 20% for the equipment plus £100 for the printer supplies.
Reducing the charge
Business use. If the equipment is used for business, the taxable perk is reduced accordingly. So say the reps use their IT equipment 80% for their job the taxable perk is reduced to just £50 (£250 less 80%).
Tip. When an employer prohibits private use of the equipment, the tax charge is reduced to nil even if the employee puts it to minor personal use, e.g. checking e-mails.
Personal use payment. The tax charge can be eliminated altogether if the employer pays their employer an amount to cover personal use of the equipment. In our example a payment of £50 from each rep would wipe out their tax bill. But there's a catch.
- While the taxable perk can be reduced using the methods explained, the amount on which an employer must pay NI isn't affected unless there's no private use at all, in which case it's zero. This means an employer must pay NI at 13.8% of the full perk; that's £250 in our example.
- HMRC will sometimes agree to reduce the amount on which NI is payable in line with the taxable amount. But if you want to make use of this concession you'll have to contact the tax office dealing with your firm's PAYE and agree it with them.
To avoid the tax rigmarole, where employees use company-owned equipment they could buy it and you could reimburse them for the business use proportion. The cost is tax deductible for the employee while the amount you reimburse is taxable. The end tax position is the same as if you bought the equipment and they paid you for private use. The advantage is there's no risk of an NI charge. The one downside is that because you won't own the equipment you can't reclaim the VAT on it, but you can for the running costs you reimburse. We think that overall the employee paying for the equipment is the better option.
The next step
The end tax position is the same whichever method you use. But where an employee pays it avoids tricky tax calculations and potential NI charges. On the other hand, you can't reclaim VAT on the cost. Overall, the simpler procedure and NI saving tips the balance in favour of an employee purchase.