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Mobile phone expenses are an area where personal and business often overlap to cause some potential tax pitfalls.
No one wants to be without their mobile, but few people want the hassle of carrying a separate business phone. So it’s usually one mobile phone doing it all, business and personal. How do you separate out what mobile expenses can be claimed through your business?
As ever, there are differences depending on whether you’re self employed or employed (including company directors).
The rules here are relatively simple. You can include your mobile phone costs as a business expense, but you can’t claim for any non-business use.
There’s no set method to work out your non-business use. But whatever you use has to have a logical basis and be appropriate for your business. You need to be able to justify your figures if they’re checked by HMRC. Keep your mobile phone statements / records and calculations to back up whatever method you use.
One method would be to look at a few months’ worth of phone statements and work out business use percentage. Then use this percentage to apply to the rest of the year. You should re-check the percentage on a regular basis, at least once per year, ideally every few months.
It may be easier to have a separate mobile or SIM that’s only used for business purposes. This would allow you to claim all of the costs.
If you buy your phone handset separately then you can claim some or all of that cost. Personal use would have to be taken into account here too. You could potentially use the same personal use percentage for the calls and apply it to the handset.
Remember, if you’re VAT registered you can only claim VAT on the business use element of any mobile costs.
This covers company directors as well as employees of all types of business.
As with other employment related expenses, we’re thinking about what mobile expenses the business can provide without being a classed as a benefit in kind. Benefits in kind incur additional personal tax which may be paid via payroll or through your personal tax return.
For mobile phone expenses it makes a big difference whether the contract is in the business name or your personal name. There are different reporting requirements, and more importantly some significant tax differences and tax traps for the unwary.
The business can provide each employee with one mobile phone or SIM card without any benefits in kind being incurred. The phone contract must be with the business (not the employee) and the business must pay the bill directly.
The most important thing, which is unusual, is that private use of the phone is allowed. This makes it a very good option for company directors and employees with a mixture of work and personal use. Particularly where they don’t want two separate handsets or SIM cards.
Additionally, if the business is VAT registered, it can claim VAT on all of these cost as long as there is some reasonable element of business use.
If there is more than one mobile (or SIM) provided, then the second one would be a benefit in kind unless it any personal use was not significant.
If the mobile contract is in your own name and you are reimbursed for the mobile phone expenses, you do have to worry about business use versus personal use. The business can only reimburse the actual cost of business calls. Anything beyond this will result in a benefit in kind.
It can be tricky to work out the business calls element. HMRC advise that you should “approach the matter in a reasonable way and give an appropriate deduction that reflects the actual cost to the employee of business calls”.
This “actual cost to the employee of business calls” is important. It means, if making the business calls doesn’t cause you to pay any more each month, there’s nothing you can claim. For example, if you’re on a tariff with unlimited minutes.
This is different to the sole trader who can split the whole bill based on percentage of business use and personal use. For an employee it’s only the extra cost of business calls that can be claimed and not any element of the line rental.
You need to be able to provide some sort of evidence to back up what you claim. This applies whether that’s based on actual calls or increase in costs. You don’t necessarily need to count every call, every month, but you do need to be able to justify your logic or calculation.
If your employer pays for the mobile phone itself, the fixed monthly charges or any element of personal use, then there will be a benefit in kind. That’s the case whether they reimburse you for the costs or pay the bill directly. There will be some income tax and Class 1 National Insurance to pay. This may be via payroll or through your self-assessment tax return.
Paying for the mobile phone handset or the fixed monthly charges incurs a benefit because the phone is available for personal use as well as business use.
HMRC’s guidance doesn’t mention anything specific about data costs. It’s only the business phone calls that are listed as being exempt from benefits in kind.
This is an area where you do need to proceed with caution and review regularly. As many mobile contracts now include very high or unlimited minutes, you could end up without any additional costs related to your business calls. Anything you reimburse in this situation would therefore include an element of personal use and could be a taxable benefit.
VAT can only be claimed on the business calls, not on anything else that may be paid for or reimbursed.
If you’re self-employed, it’s pretty straightforward. You just need to focus on the best way to work out your percentage of business use.
If you’re employed then the rules are surprisingly lenient if the business provides the phone, but very strict if the contract is in your own name.
If you’re claiming for your personal mobile expenses through your limited company, you need to be very careful to make sure you’re not accidentally incurring a taxable benefit in kind.
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