It’s common to provide an employee with a mobile phone. Your business probably gets one for you too!!
The business can claim tax relief against its profits, and the employee pays no tax. But you do have to be careful – get it wrong and you could face a tax charge.
So, as a business owner, what do you need to consider?
How do I make sure it’s tax-free?
You can provide an employee with a mobile phone with no tax or National Insurance liability as long as you meet the following three criteria:
- The mobile phone remains the property of the business. You can’t give a mobile phone to an employee. If you do, there’s a tax charge.
- There is a maximum of one phone per employee. This includes any of their family unless the family member is also an employee.
- The phone contract must be in the employer’s name. If the contract is in the employee’s name, it doesn’t count and there can be a tax charge.
Does this include smartphones?
It certainly does. Give HMRC their dues – they’re pulling themselves into the 21st century! However, they do warn that “this is an area of rapidly changing technology and it is not possible to be certain about the application of the definition of ‘mobile phone’ to future or new forms of smartphone”. Now that’s all clear!
Can I pay an employee’s mobile phone bill?
Yes – but there’ll be a tax charge.
The end result might seem the same – the business pays the same amount – but the tax treatment is very different.
- If you provide an employee with one mobile phone for his or her use, there is no tax or National Insurance to pay.
- If you pay the bill on behalf of your employee, you will have to report this as a “benefit in kind” on their P11D and deduct Class 1 National Insurance via the payroll.
- If the employee pays the bill and you reimburse the cost, you must deduct PAYE and Class 1 National Insurance via the payroll.
It pays to get it right – make sure the contract is between the business and the phone provider to get it tax-free for you and the employee.
And don’t get greedy – it’s only one each!
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Added by Jon Davies
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