Mobile phones & company tax
Mobile phones have become increasingly important both in and out of the workplace. With more features than ever, if used properly they can effectively act as little mobile offices. Many employers know that providing mobile phones as part of employee salaries can be tax-efficient, with their provision being both a tax and national insurance-free benefit. Here we outline some strategies to get the most rewards at minimal cost.
For many years company mobile phones (or SIM cards) for employees have been a tax-free benefit. In 2006 the exemption was limited to one mobile phone provided to each employee for private use and specifically excluded the employee’s family and household. In 2012 HM Revenue & Customs (HMRC) decided that smartphones were technically mobile phones rather than computers and thus potentially qualified for the mobile phone exemption.
The exemption covers the phone itself, any line rental and the cost of private calls paid for by the employer on that phone.
One of the key requirements in order to qualify for tax exemption is that the mobile phone contract must be in the company name. This means employer reimbursement for personal mobiles does not count, nor does simply adding the company name and address to the invoice of a personal phone.
There is no taxable benefit on an employee if an employer reimburses them for the cost of any business calls made on their personal mobiles.
To make sure employees do not excessively use their mobiles to the point where it becomes too expensive for the business, consider a limited contract with a set number of free call minutes per month. Should an employee exceed their limit, the business can request them to pay back any additional charges.
Any reimbursements they make will, however, come from their net pay. One way around this is to set up an employee salary sacrifice scheme for mobile phones, although the administrative burden of setting this up may make it an unattractive option.
While salary sacrifice is not a tax-free benefit in kind, it may be another option to consider since it can help reduce employee tax and national insurance contributions (NICs). Much like salary sacrifice for pensions, an employee chooses to give up the cost of the mobile phone contract from their salary. This means no cost for you and an increase in net pay for the employee.
Current income tax and NIC levels mean salary sacrifice offers a saving of £32 for every £100 spent for basic rate taxpayers. This figure is £42 for higher rate taxpayers. This may prove to be enough of a benefit for your employees.
Salary sacrifice arrangements are effective when the contractual right to cash remuneration has been reduced. So, for example, the employee does not have the right to give up the benefit and revert to the original salary at any time. This does not stop employers and employees reviewing and adjusting the contractual arrangements at a later date.