Tax free mobile phones for businesses

In 1991 the infamous tax on mobile phones introduced a £200 flat rate charge on the private use of mobile phones provided by employers. It was hoped as a result of this companies would be deterred from providing them. With an increasing emphasis on communication, this made no difference.

The tax was scrapped in 1999 and since then mobile phones have been one of the most popular tax free benefits employers could provide for their employees.

How do mobile phones qualify for exemption?

For this benefit to be considered tax free there are several conditions HMRC has put in place:

  • the contract for the phone must be in the name of employer and not the employees
  • the phone must be provided by the employer so that the handset belongs to them
  • the employee can only benefit from this exemption for one mobile phone

Employer issues

Many employers are still not meeting these conditions and tax liabilities on them and the employees may arise as a result of this.

If the mobile phone contract is held in the name of the employee (even a director/shareholder)rather than in the employing company’s name then it is only possible for itemised business calls to be paid by the company without any tax implications. The costs relating to line rental and private calls may be deemed to form a taxable benefit with income tax and national insurance implications.

It is therefore important to ensure that any contracts are in the appropriate name and payment arrangements such as direct debits should only be made by the company if the contract is in its name.

Changing the contract

To avoid unwanted tax implications if a contract is held in an employees name then it should be switched to the company as soon as possible. This can present a problem for new companies which do not have an established credit rating so the provider may charge a significant premium for changing the contract, or in the worst case refuse to deal with you. The extra cost should be weighed up against the possible tax cost and if necessary the contract subsequently transferred to the company once established.

Exemption for one mobile phone

This condition means you are only allowed one mobile for personal use on a tax free basis. If you own a second mobile and it is only used for business purposes, for example if it is kept in the office then this would not be taxable.

Smartphone’s

HMRC has recently accepted that smart phones such as Blackberries and iPhones satisfy the necessary conditions to qualify as mobile phones for these purposes.

Mobile phones for family members

Unless the family member is also an employee of the same business the phone provided to them will not qualify for the exemption.

To find out more about how to enjoy a tax free mobile phone please do not hesitate to contact a taylorcocks member of staff here.