What are the tax implications of a Bring Your Own Device (BYOD) scheme?
Bring Your own Device (BYOD) schemes are all the same? Right? Well no not really. There are essentially 2 different types of scheme. The first type is where an organisation lets their employees or students bring their laptops or (more likely) mobile devices to work or college and allows them to attach to the corporate network. The second type is where a company contributes money to an employee to buy the device of their choice so that the individual can use one device for personal and business use. It is in these types of schemes that the company needs to think about the tax implications for the employee.
The idea of employees choosing and buying their personal IT preferences into the workplace means that they have greater familiarity and satisfaction with their chosen devices and therefore increased productivity. It is also possible that because the employee considers the device their own they will potentially look after the device to a greater extent. This is good for the employee and employer alike and so it might be a fair assumption that as any device bought under a BYOD scheme is used primarily for business it will be exempt from tax. Unfortunately this assumption is incorrect.
The tax aspect is actually very straight forward. It boils down to who owns the asset? This question determines the treatment: if the company owns the asset, the company claims capital allowances thereby reducing its corporation tax bill. If the employee has the asset given to them by the company, the company claims the capital allowances but the employee gets a benefit in kind related to the asset transferred, attracting income tax, and the employer pays Class 1A national insurance contributions. However if the employee owns the asset, it is nothing to do with the company. In the latter instance if you give an employee a sum of money to buy a laptop or mobile device, the device is owned by the employee and not the company. The money given is considered to be salary and attracts tax and national insurance (both employee and employer). Thus an employee given £1000 who is a 40% tax payer will in reality only get £600 (less NI) and the employer will pay more in NI for making the grant.
In addition the employee will pay a gross amount for the device, which includes VAT or sales tax. At its current rate of 20% a standard Dell Latitude E6430s that costs about £1,269 would cost an additional £253.80 once you add in VAT. A company would be able to offset the VAT (input tax) against the VAT it levies on the sale of its goods and purchases (output tax), but an employee cannot do this. This makes the cost of ownership for a laptop bought outside of a company structure more expensive and less attractive.
Of course this does not mean you can’t run a BYOD scheme. You and the employee could simply accept the tax implications associated with granting money to the employee. For example I know several IBM employees who are quite happy to literally bring their own devices without any funding from their employer just so they get to use the device they want (usually a MacBook Air or an iPad). Alternatively you could run a scheme where the employee is allowed to choose the device they use from a preferred list whilst you retain the ownership within the company. Of course the latter option loses some of the BYOD benefits listed above but it could be considered a good compromise.
Longer term it has to be hoped that the government will catch up and introduce schemes that allow BYOD schemes to be tax exempt. For example there is a popular scheme for Cycle to Work where the employee is able to receive money to buy there own bicycle and not be taxed. Marcus Jewell, UK country manager at Brocade in a recent interview, pointed out “[tax breaks will] incentivise businesses to get on board and help them release the full potential of BYOD in the long term”.
Let’s hope the government is listening.
If you are interested in running your BYOD scheme or want to discuss anything in this blog then give me a call at Orb Data on +44 (0) 1628 550450 or email me at email@example.com . You can also follow Orb Data on Twitter at @OrbData.