What is a computer salary sacrifice scheme?
The benefit, usually offered via a flexible or voluntary benefits scheme, enables employees to pay for a computer, laptop or tablet out of their gross pay, resulting in tax and NI savings for the employee and NI savings for the employer. However, unlike other tax-efficient benefits, such as bikes for work, which receive a full tax break, a computer is taxed on 20% of its value every year.
Where can employers get more information?
Information about how computer salary sacrifice schemes work can be found on provider websites. HM Revenue and Customs’ website gives more details on the tax treatment of computers.
Who are the main providers?
Providers include AV Corporation, BHSF, Clarkwood Enterprise, Computingscheme, Computershare Voucher Services, Exertis Micro-P Employee Benefits, Let’s Connect, P&MM Employee Benefits, Stormfront and Techbenefits.
4% of employers offered computers as a core benefit to all staff in 2013, compared with 3% in 2009
3% of employers offered computers through a flexible benefits scheme in 2013
5% of employers offered computers as a voluntary benefit in 2013
Source: The Benefits Research 2013 , conducted in March 2013. Total respondents: 561
The benefit, which is usually offered through a flexible or voluntary benefits scheme, enables employees to pay for a computer, laptop or tablet and related accessories, such as printers and cases, out of their gross pay. This results in tax and national insurance (NI) savings for the employee of up to 12% for basic-rate taxpayers and 2% for higher-rate taxpayers, as well as NI savings for the employer.
However unlike other benefits that use salary sacrifice arrangements, such as bikes for work , which receive a full tax break, a computer is taxed on 20% of its value every year. By contrast, under the home computing initiative (HCI), which was scrapped by the government in 2006, employer-provided computers received a 100% tax break.
At the moment, if a 40% taxpayer selected a laptop costing £1,000, their annual benefit-in-kind tax (on 20% of the value, or £200) would be £80. For this tax treatment to apply, the employer must own the equipment and fund the cost of it on behalf of employees, who then pay the employer back over a fixed period, normally between two and three years.
Given that the tax break is less than it was under HCI, employers are keen to use their bulk purchasing power to secure discounts on the cost of the equipment. Employers can achieve discounts of 3% to 5% off the retail price, and further savings could be available if extended warranties and insurance cover are taken out on the equipment.
Another attraction of a computer salary sacrifice scheme is that it allows staff to spread the cost of computing equipment across monthly payments without having to obtain credit. However, some providers will require employers to fund the cost of a consumer credit or hire agreement if there is not one in place.
Although most providers do not charge for setting up a scheme, with many making their profits from selling accessories and insurance cover, employees’ orders may be subject to administration and delivery fees.
Some employers choose to offer computers to staff in a straightforward discount scheme, rather than through a salary sacrifice arrangement. Although there are no tax and NI savings, these arrangements allow for shorter repayment periods and open up the benefit to low-paid workers who cannot participate in salary sacrifice.
Like all benefits, computer salary sacrifice schemes need to be communicated effectively to ensure staff understand: the impact the benefit has on their take-home pay; the tax treatment and benefit-in-kind liability; and how the hire and payment agreement between them and their employer is regulated.
For example, although most agreements will be set up so that the cost of the computer is paid off by the end, staff still may have to pay off any outstanding P11D balance before they can take the equipment from their employer.
It is also important to reiterate an employee’s obligations if they leave the organisation before the agreement ends. Normally, they will be expected to settle any remaining payment out of their net pay.
A well-thought-out computer salary sacrifice scheme is cost-effective way of meeting employees’ growing demand for new technology.