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Last Updated: Wednesday, 22 March 2006, 18:54 GMT
Budget blow to home computers
Desktop computer
Not tax free anymore
The government will withdraw the tax exemptions for staff who may be loaned a computer by their employer.

It will also restrict the tax exemption on mobile phones loaned for personal use, to just one phone per employee.

The Treasury said the changes come in on 6 April and do not affect current arrangements, only new ones from that date onwards.

The tax break for loaned computers has been available since 1999 under the government's Home Computer Initiative.

Run by the Department for Trade & Industry, it was aimed at getting more people to have computers in their homes and improving the nation's computer skills.

Since then most households have acquired a computer of their own accord, usually with internet access, and their cost has plummeted.

The government scheme worked by removing a large part of the usual tax charge that would be levied on the loaned computers, which would normally have been taxed as a benefit in kind.

For employees the advantage was that they could get a new computer, repay their employer who supplied it, but avoid being taxed at their highest rate on 20% (or 500) of the value of the new equipment, where the equipment was worth up to 2,500.

The scheme also meant that both employers and their staff could reduce their National Insurance contributions if the loan of the equipment was repaid via an arrangement known as salary sacrifice.

Mobile phones

Up to now, employers could loan their staff up to five mobile phones each for their private use, also without the employees being taxed for receiving a benefit in kind.

That opportunity will now be restricted to just one phone per member of staff as it had become apparent that many of the phones were simply being distributed to members of the family.

A trade body for the IT, telecommunications and electronics industries - Intellect - criticised the budget decision.

Tom Wills-Sandford, deputy director general of Intellect, urged that it be reconsidered.

"Intellect is dismayed by the announcement in today's budget. The Treasury should have taken the opportunity to engage in a formal consultation process to fully assess the benefits of this scheme.

"To date, the initiative has successfully driven uptake of home computers and has played a useful role in widening digital inclusion.

The government stressed that the changes do not affect equipment supplied to staff solely for business use, which does not attract tax or national insurance anyway.

The DTI, HM Revenue & Customs and the Treasury were unable to say how many companies have used the home computer scheme in the past seven years.

Recent industry figures have suggested that half a million people have benefited from such a scheme.

But the Treasury Red Book, which provides detail on the impact of budget announcements, shows that the continuing cost of the computer scheme would have been quite substantial.

The government expects to save 50m this coming financial year by abolishing the tax exemption, rising to 150m in 2008-09.

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