3 January 2020
Did you receive a new mobile phone for Christmas or has a promotion at work brought with it a new phone?
If so, HMRC’s recent release clarifying the position on the taxation of mobile phones provided to employees by their employers may make appropriate reading. Not much in that, you might think, but it’s an area that regularly causes confusion and consternation and therefore any clarification is welcome.
HMRC Guidance
The ‘Guidance: Company mobile phones (480: Chapter 22); How to tax company mobile phones given to employees’ starts by explaining that there’s no charge to tax on a mobile phone given to an employee, or on any line rental or the cost of any private calls for that phone paid for by the employer, as long as these cannot be converted into money by the employee. Further, two connections to one number is deemed to be one phone, but two connections to two mobile phones is, erm, two phones.
Employee Tax Charges
Tax charges arise where a phone is given to a relative of an employee, or a member of the employee’s household, whether or not the employee has a company phone. Although, if the relative or household member is also an employee of that employer, then all bets are off and there’s no cross-taxation. Similarly, money paid by an employer to reimburse an employee for use of the employee’s own phone is taxable. No mention is given of that most heinous of crimes – that’s from a tax advisor’s viewpoint, not HMRC’s – an employer settling an employee’s mobile phone contract charge directly. Not only is a tax charge visited on the employee, but Employee’s NI also arises, maximising the tax payable.
However, should an employer decide to give an employee two mobile phones, one for use exclusively or overwhelmingly for business and the other only for private use, then no tax charge will arise. Conversely, should an employer give an employee two phones, each for business and private usage, then one of them will be taxable, with the employer and employee agreeing which of them is chargeable.
Device Guidance
The guidance tries to deal with ever-advancing technology by indicating a kind of primary purpose test. If a device is primarily designed for use as a phone, then whether or not it has other functionality, it’s a phone for these purposes. Equally, if your tablet has a sim card and calls can be made on it, it’s not primarily a phone and therefore it doesn’t qualify for tax treatment as a phone. As phones get larger and tablets get smaller, I look forward to a future tax tribunal decision on whether one is the other or not.
Finally, the guidance mentions optional remuneration arrangements, such as old-school salary sacrifice schemes, and advises that if a phone is obtained in this way, then the income tax exemptions don’t apply.
If you are an employer considering how to compensate your employees for all the business calls they make on their phones, before you talk to your employees, talk to your accountant and make sure there’s no more tax payable than necessary.
If you have any queries about the tax arising on the provision of mobile phones, or on any other benefits in kind, please contact me or your local UHY tax specialist.
Alternatively, fill out our contact form here.
