Personal use of computers and VAT
Many of your staff that work from home at least part of the time. They are provided with laptops so they can work remotely. But if they use them for personal purposes, are there any VAT consequences? Elaine Wight from our Hawick office advises.
No business use
If you incur expenses that have no business purpose the VAT you pay to the supplier is not input tax and cannot be claimed. You will capitalise the VAT inclusive cost to your balance sheet. However, it is unlikely that your employees will have no business use of a company provided computer, e.g. most employees spend time dealing with work-related emails.
They might also use their computers to ask technical queries or request other job information from a generic AI app, which also qualifies as business use.
Partial private use
Many employees will use their computers for private as well as business purposes unless they are precluded from doing so by a strict contract of employment. If so, an apportionment of input tax should be made at the time of buying the computer to reflect the split of business and private use. However, you don’t need to spend a lot of time with the calculations, and to quote from HMRC’s guidance : “The way of working out the apportionment should be kept simple. It should not put any substantial burden on the business to keep supporting records.”
Our advice is as follows, the method you adopt is not prescribed in law, but you should keep a written record of how you apportion your input tax in case it is queried by HMRC. However, if HMRC thinks your method is not “fair and reasonable”, an officer could issue a best judgement assessment for the last four years but this is unlikely in most cases.
Partial exemption
There is an extra hurdle to consider if your business is partly exempt, i.e. a further input tax restriction will be needed if the computer is used partly or wholly for exempt activities. You must deal with the input tax challenges in the correct order. Firstly, remove the VAT that relates to private use.
For partial claims, your business must use the partial exemption standard method (based on taxable and exempt sales) unless you have agreed a special method in writing with HMRC.
Output tax apportionment
If you don’t know the business and private use split when you buy your computers, or which employee it will be allocated to within your business, you can fully claim input tax (subject to normal rules) but must account for output tax on each VAT return based on the private use in that period.
Please note, the calculations are based on a five-year asset life, i.e. 20 VAT quarters. No output tax will be due after this window has expired.
IN SUMMARY
You should adopt a simple calculation to apportion input tax between business and private use. If the use is unknown, you can fully claim input tax when you buy the computer and account for output tax on private use when you complete each return.
If you would like to discuss this further with the JRW Hogg & Thorburn team please do get in touch.
