09 May Mobile Phone Tax Traps All Companies Should Look Out For

Tax and NI-free perk

The original intention of the tax and NI exemption for employer-paid for mobile phones was to encourage what was then relatively new technology and mobile working opportunities for employees. The trouble was the legislation unintentionally created a loophole allowing individuals to use the tax break not just for themselves but for multiple phones for their family members. In 2006 the rules were overhauled to close the loophole.

Current exemption

Since 2006 companies can only provide an employee (or director) with one mobile phone for personal use. This exemption covers the cost of the contract for the phone itself and private calls. Importantly, the exemption doesn’t apply if the company simply pays the bills.

Trap: The contract for the phone must be between your business and the phone provider; the employee must not own the phone nor be liable for the contractual payments.

Reimbursement trap

If you pay an employee’s mobile phone bill direct to the phone company, it counts as a taxable benefit in kind and must be declared on the P11D . This means your business will have to pay Class 1A NI on the value of the perk. However, the director or employee escapes NI. If you reimburse an employee their mobile phone costs, that amount is not taxable as a benefit. It counts as additional pay on which you must account for PAYE tax plus employers’ and employees’ NI.

Tip: There’s no tax or NI if you reimburse or pay an employee’s phone charges where you can identify them as relating to their job.

What if someone else uses that phone?

Not all HMRC’s traps have the force of law. Its guidance gives the impression that the exemption doesn’t apply if someone other than an employee provided with the phone uses it, e.g. their spouse. However, the law simply says the exemption applies to a phone provided “for an employee” . What they do with it after that is irrelevant. For example, if they let a family member use the phone for any length of time the exemption still applies. Only where your business provides the phone to another person, e.g. an employee’s spouse, is it outside of the exemption.

Tip: Avoid arguments with HMRC by making clear the terms on which you provide the phone to employees or directors – specifically that it is for their use only. You do not need to mention how they will use the phone.

Sources:

My Tips & Advice

HM Revenue & Customs