We all remember the notorious flat rate charge of £200 that was introduced back in 1990 for the private use of mobile phones provided by employers. Don’t we?. The aim of the charge was to discourage employers from providing them, however with the increasing dsemand and emphadisi on communication, this actually made no difference. In 1999 HMRC decided to swcrap the Tax and ever since mobile phones have been one of the most popular tac free benefits employers could provide for their employees.
It is a shame that we are still hearing that many new business owners and entrepreneurs fail to realise the benefits of having a business mobile phone for work purposes. The majority of people think that using their own personal mobile for business calls will be sufficient for them to get the company to foot the bill. In truth, the law governing this area means that such people may well find themselves subject to national insurance and income tax contribution demands as the phone bill is seen as a payment of expenses and thus a “taxable benefit“. A company mobile on the other hand is deemed to be a tax-free benefit.
This is covered by Section 319 of the Income Tax (Earning and Pensions) Act 2003 and the Finance Act 2006.
a&c Chartered Accountants have provided a breakdown of how you can make sure you reap the benefits of this useful business/tax tip.
How do mobile phones qualify for exemption?
TO ensure this benefit is completely tax free the following conditions have been put in place bu the HMRC:
- 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
You must ensure that the name on the mobile phone cotract is not one of an employer. The name on the account must strictly be of the employing companies name. This way you shall avoid any tax imlications in the future as the phone wioll only allow itemised business calls to be paid by the company. This is also relevant in regards to how you pay your monthly bill. All direct debits or payment arrangement must be made by the company only. If the contract or payment methods are regiostered by anyone else other than the compny you are technically only able to claim the proportion of the costs that relate to your business. If this is the case you will be expected by HMRC to russle through the your recorded phone records and add up the pennies yourself.
Rememebr that HMRC must be noted if the contract is in your name and you are claiming full cost through the company, because you are creating a taxable benefit. Hmrc will then issue you a PD11 form for you to complete.
Changing The Name On The Contract
Most providers are more then happy to change your contract into the nam of the company. If you do come across any problems you should aim to terminate your contract as soon as possible and then once your contract has ended you can then open a new contract in the companys name. One issue most new businesses incur is the fact they have not yet established a credit rating and in result of this if you are a new business with no credit history then you will be charged premium for the contract change. The added cost should then be evaluated and compared against the tax cost and if needed the contract will be transfered into the company once established.
In recent time HMRC has now recognised that smartphones meet the demands of the conditions, to be usec as a mobile phone.
If your company kindly provides a mobile phone for your spouse/son/daughter or other relative then this phone must of only been issues to them by the director or employeed of your company in order to benefit from the exemption. It is vital that you are able to demonstrate that your family member carries out some sort of labour for the company and was not just given the phone because they are related.
For any further information on the issues raised in this article please don’t hesitate to contact a member of the a&c Team. Call 0161 962 1855 or email firstname.lastname@example.org