In this guide, we look at how mobile phones are treated for tax purposes, including a recently announced change of tax status for ‘smartphones’, which are no longer treated as a Benefit In Kind.
Mobile Phone Expenses
If you provide any of your employees with mobile phones, you can reclaim the cost against Corporation Tax, and the employee will not pay tax on the benefit for the first handset provided.
However, if an employee has more than one handset, or handsets are provided to family members, then these extra handsets will be taxed as a Benefit in Kind (paid by the employee).
The exemption applies to the actual mobile phone, and the costs of line rental (if applicable) and calls made.
If a director or employee uses his/her own mobile phone for business calls, the cost of actual calls can be legitimately reclaimed from the company.
Due to ‘duality of purpose’ considerations, you cannot reclaim for the costs of your monthly personal phone tariff, as you would be paying this anyway.
Until February 2012, so-called ‘smartphones’ were treated as a Benefit in Kind, so employees were taxed on the benefit of having a smartphone provided by their employer. The reasoning behind this was that HMRC deemed that the primary use of such smartphones was NOT to make phone calls.
In Revenue & Customs Tax Brief 02/12, HMRC states that its past treatment of smartphones had been incorrect, and not only are such devices allowable expenses, but any Benefit In Kind taxes paid in the past can also be reclaimed.
However, tablet computers and laptops are not exempt, even if they have the ability to make calls via the Internet (typically VoIP).
Only the first smartphone provided to an employee is free from tax charges, subsequent handsets and those provided to members of the employees family do still attract a BIK charge.
The full details on the tax treatment of mobile phones can be found in EIM21780