Contact: Jon Pittam, ext 7400, e-mail: [email protected]

1 Background

1.1 The Leader agreed in September 2004 that `salary sacrifice' schemes for childcare vouchers and home computers should be introduced for staff from April 2005 as part of the Pay and Benefits project. The childcare scheme with Busy Bees is now in operation. This report summarises progress on the home computer initiative, including the proposed financial arrangements for acquiring the equipment and software.

1.2 Schemes to enable all employers to provide employees with childcare vouchers and home computers under salary sacrifice arrangements have been approved by the Inland Revenue. In the case of home computers, the employer leases the equipment to an employee over a three-year period. To pay for the equipment, the employee agrees to a cut in gross pay, known as the `salary sacrifice'. In effect, the employee receives the computer equipment as a non-cash benefit which is not subject to income tax, national insurance contributions or VAT. These savings in taxation make the scheme attractive to employees compared with buying a computer on the High Street or via the internet.

2 Home computer initiative

2.1 Following the Leader's agreement in September 2004, tenders were sought from specialist companies providing home computer initiative schemes, with BT being subsequently appointed as facilitator. The equipment will be provided by Dell. The County Council could either lease or purchase the equipment from the supplier.

2.2 In order to provide the maximum benefit for employees, it is proposed that the County Council purchases, rather than leases, the equipment. If the County Council leases the equipment, the employee is limited to equipment with a value of up to £1,500 under the salary sacrifice tax regime. If, however, the County Council purchases the equipment, the tax regime allows the limit to be increased to £2,500. In both cases, the employee would pay for the equipment by salary sacrifice over a three-year period. BT will make available to staff a range of options, including low cost packages that fall well within £1,000.

2.3 Staff wishing to acquire equipment above the salary sacrifice limits of £2,500 for the purchase option, or £1,500 for the leasing option, would be able to do so but would have to purchase the additional equipment outright and would not benefit from the tax savings on it.

2.4 The scheme will operate at no cost to the County Council or to council tax payers. The employee will meet the cost of the equipment via the salary sacrifice deductions over the three-year period and this will include the County Council's financing costs. The employee's savings from income tax, national insurance contributions and VAT will be borne by the Exchequer. Indeed, the County Council will benefit from savings in employers' national insurance contributions and these will more than offset any administrative costs incurred. BT will not charge the County Council for operating the scheme. They will cover their costs by retaining any purchase discounts they are able to negotiate with Dell.

2.5 The purchase of the equipment will be charged to the County Council's revenue account, in accordance with normal practice for the purchase of equipment with a relatively short life. The cost will be met by the employees' salary sacrifice contributions, with a deferred debtor raised at the end of each financial year in respect of the contributions still outstanding from employees. As the County Council's interest costs on the cashflow will be recovered from employees as a financing charge included in salary sacrifice deductions, the only impact on the County Council's revenue budget will be the small gain from reduced employers' national insurance contributions referred to in paragraph 2.4. Take-up of the scheme by employees is difficult to forecast at this stage but the reduction in employers' national insurance contributions might be £20,000 in 2005/06 rising to perhaps £0.1m in 2007/08.

2.6 In addition to limiting employees to equipment valued at £1,500 instead of £2,500, leasing the equipment from the supplier would involve complex decisions about the nature of the lease and its correct treatment in the County Council's balance sheet.

2.7 Employees may not sacrifice their pay below the level of the minimum wage so there will be some restrictions to eligibility. This assessment will take account of salary sacrifices for both the childcare voucher and the home computer schemes. Teachers are also not eligible for salary sacrifice schemes as their pay agreement does not permit local authorities to pay teachers below the level of national pay scales. This issue has been referred to the Department for Education and Skills to include in the remit of the next School Teachers Review Body's deliberations.

2.8 Discussions with BT are continuing but it is hoped that the home computer initiative scheme will be launched later this summer, with all the publicity material provided by BT. A further `window' in which staff will be able to order equipment from the scheme will be opened in the lead-in to Christmas 2005 and again at intervals in subsequent years.

2.9 Overall, this Government-backed scheme provides a worthwhile benefit for employees at no cost to the County Council. Many other employers are making it available to their staff, including other local authorities.

3 Recommendations

3.1 The recommendations are contained in the decision sheet summary which precedes this main report.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

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