You’ve just signed a contract for a new mobile phone. As most of the use will be for your business, can you put the expense through the company and, if so, what will be your and your company’s tax position?
Exemption benefit
You’ve signed on the dotted line for the latest mobile phone but you’re now wondering what the tax consequences will be when you use it for work. Specifically if the company reimburses you for the monthly contract payments will it qualify for tax relief and more importantly will you be entitled to the mobile phone tax exemption.
Company tax
The good news is that when your company pays the mobile bill direct or reimburses you, it’s entitled to claim a corporation tax (CT) deduction for the expense. The bad news is that if the contract for the phone is between the provider and you personally, the benefit in kind exemption for employer-provided mobiles won’t apply.
Mobile phone exemption
Employers can provide employees (including directors) with one mobile phone each for personal use. The benefits in kind exemption covers the contract for the phone, plus the cost of business and private calls. Importantly, the exemption doesn’t apply if the company simply pays the employee’s or director’s mobile bill. Trap. The contract must be between the business and the phone provider as the conditions of the exemption are that the employee must not own the phone nor be personally liable for the rental payments.
Reimbursement equals taxable benefit
The reimbursement of the contract charges (but not necessarily additional charges, see the Tip below) is taxable as earnings for PAYE tax and NI purposes even where the mobile is used some or all of the time for business. Where, instead our subscriber’s company pays the bill direct, it counts as a benefit in kind (and so not taxable as earning through PAYE) but remains as earnings for Class 1 NI purposes.
Trap. Any non-work-related extra charges are also outside the exemption. It only covers “anything which may be used in such apparatus for the purpose of gaining access to, or using, a public electronic communications service”. That means the cost of apps etc. not primarily for business use, and paid for by our subscriber’s company, is a taxable benefit and liable to NI.
Tip. There’s no tax or NI for reimbursements or payment of additional charges, e.g. where the call isn’t free or included in the contract, where they are for work and the cost is specifically identified.
Company v personal contract
To make use of the benefits in kind exemption it would be necessary for your company to have purchased or entered into a contract for the phone. However, the damage might not be as costly as feared. Business contracts tend to be more expensive that personal ones. Therefore, before you sign a mobile phone agreement always crunch the numbers before deciding whether to put your or your company’s name to it.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.