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Treasury denies new tax on PCs

Tags:
Income Tax,
HCI,
Tax Law

Tom Espiner ZDNet.co.uk

Published: 03 May 2006 11:05 BST

The Treasury has denied reports that the current Finance Bill contains proposals to impose a stealth tax on businesses and employees for computer use at work.

The Times and The Scotsman both reported on Tuesday that employers would face the tax if their staff surfed the internet for non-work reasons or sent personal emails. Firms could be charged around £50 per PC while employees could be taxed up to £160 per year, the reports said.

However, the Treasury has categorically denied the bill includes any such change.

"There will be no change in how a computer used for work purposes will be reported or taxed," a Treasury spokesperson told ZDNet UK.

"At the moment, if an employee needs a computer for work it's not a benefit in kind, and so it's free of charge. The employee has no personal gain because it's been provided for work purposes."

However, tax experts on Tuesday insisted there is a danger employers will be charged for their employees' personal Internet use.

"The legislation states that if your personal use is other than insignificant there will be a tax bill," said Anne Redston, chairman of personal taxes for the Chartered Institute of Taxation.

"This could be a burden on employers and employees, but I'm hopeful we'll get a better result and that the government will take a pragmatic approach."

Redston said that in a worst case scenario the removal of the Home Computing Initiative (HCI) from the Finance Bill would make employers liable for more national insurance contributions, and employees liable for higher income tax.

Moreover, businesses could be responsible for auditing the email and Internet usage of individual staff, noting all personal email and logging all Web sites visited.

"Policing this would be a really big burden," said Redston. "Employers would have to audit Internet use, otherwise during a PAYE audit they would be liable for a charge.

"If employers hadn't audited Internet use, and inspectors during a PAYE audit say that at least half of your staff are ignoring the rules, then pick a number of what you'd be charged."

The changes in the Finance Bill are being brought in to replace the Home Computing Initiative (HCI), a scheme that gave tax breaks to employers who provided PCs to employees. It was abolished by the Chancellor, Gordon Brown, in the Budget in March.

The Treasury denied the changes will result in a greater auditing expense to employers and more red tape.

"There will be no change and no extra burden on employers," the Treasury spokesperson said. "The removal of tax exemption for HCI does not have any effect on computers supplied for work purposes."

The Conservative Party is expected to table an amendment to the Finance Bill on Wednesday asking HM Revenue & Customs to issue a guidance note clarifying the situation.

Influential employers' organisation the Confederation of British Industry (CBI) is unhappy the HCI has been scrapped.

"This unexpected policy change flies in the face of the government's pledge to reduce red tape, cut businesses' tax compliance burdens and stimulate computer literacy in our society," Sir Digby Jones, director general of the CBI, told ZDNet UK in an email.

"Reversing exemptions on personal use of office computers will do nothing to foster greater IT literacy or to encourage taxpayers to communicate electronically with the Inland Revenue or other government departments. This move is not the way to increase public or private sector productivity.

"The Chancellor did not practise what he preaches when he abolished the HCI with a marked absence of any consultation. I hope he will not make the same mistake a second time."