The risk of company mobile phones
Michael Lansdell covers what you need to know.
If you’ve got a contract for a mobile phone, which you use mainly for work, you may want to put the cost through your company. What are the tax consequences?
Well, you might be worried that if your company reimburses the monthly contract payments, you’ll miss out on the tax and NI break for mobiles. Also, will your company lose corporation tax (CT) relief?
The good news? Whether your company pays the mobile bill direct or reimburses you, it’s entitled to claim a CT deduction for the expense.
But 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) 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 your 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 your company, is a taxable benefit and liable to NI.
Tip: There’s no tax or NI for reimbursements or payment of additional charges, for example, where the call isn’t free or included in the contract, even if they are for work and the cost is specifically identified.
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 business contracts tend to be more expensive than personal ones. Therefore, before you sign a mobile phone agreement, always crunch the numbers to decide whether to put your name or your company’s to it.
If the contract is between you and the mobile phone provider, any reimbursement of the regular charges counts as earnings for PAYE tax and NI purposes. If instead your company pays the bills direct, the tax will be payable through the benefits in kind regime. Either way, the company can claim a corporation tax deduction for the cost.
Your phone can save you and your company money. To find out more, and to discuss other tax-saving tips without falling into any traps, give Figurit a call on 020 7376 933.