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HM Revenue and Customs Brief 55/07


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Issued 13 August 2007

Revised treatment of VAT incurred on home computers made available by employers to their employees

This Revenue and Customs Brief sets out HMRC's revised policy on the VAT treatment of computers made available by employers for use in their employee’s homes; this follows withdrawal of the tax exemption which allowed employers to loan computer equipment to their employees tax free.


In April 1999 the Government introduced a direct tax exemption which enabled employers to loan a computer to their employees tax-free. The objective was to help increase access to computers and help employees increase their IT literacy skills. In January 2004 the Government launched the Home Computer Initiative which encouraged employers and employees to take advantage of the exemption and sought to make it as straightforward as possible for employers to lend computer equipment to their employees.

At that time the former HM Customs and Excise considered that, while there would undoubtedly be some private use of the computer - usually requiring some restriction on VAT recovery - in the circumstances of the HCI there would be wider benefits to the business and so the VAT treatment should mirror the approach taken for direct tax. Consequently, as long as there was some business use, any VAT incurred, could be deducted in full without any adjustment for private use.

Following a review of the HCI the direct tax exemption was withdrawn with effect from 6 April 2006. Consequently HMRC have now reviewed the VAT position.

HMRC’s revised policy

HMRC’s policy to allow full VAT recovery without any adjustment for private use, in circumstances where there is any business use, is withdrawn from the date of this Revenue and Customs Brief.

With immediate effect businesses must consider why the computer is being provided to the employee to determine the level of VAT that can be claimed. Businesses will only be able to claim full VAT recovery without any requirement to account for VAT on any private use (subject of course to any restriction in respect of exempt supplies) where the provision of a computer is necessary for the employee to carry out the duties of his employment. In these circumstances HMRC’s view is that it is unlikely that any private use will be significant when compared with the business need for providing the computer in the first place. This mirrors the approach taken for direct tax concerning exemptions for work related benefits in kind where there is no significant private use.

Where a business cannot demonstrate that it is necessary to provide an employee with a computer in order to carry out the duties of his employment then only a portion of the VAT incurred will be recoverable as input tax. HMRC will accept any method of apportioning the VAT incurred as long as the result fairly and reasonably reflects the extent of business use. In order to minimise your administrative burdens you may be able to agree a set percentage with HMRC based on a representative period.

Transitional Provisions

Where a business continues to provide a computer under an existing HCI agreement full VAT recovery can continue until the agreement (normally 3 years) has expired. For further information on these transitional provisions please refer to direct tax guidance EIM2699.

What if the business is not the recipient of the supply?

Please note that it is a basic principle of the VAT system that VAT can only be recovered as input tax where the supply is to the taxable person or business. So, in circumstances where the supply of the computer is to the employee the business cannot recover the VAT incurred on that supply as input tax.

About the Author

© Crown Copyright 2007.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2007-08-14 17:28:13 in Tax Articles

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