Beware of the mobile phone tax trap
It’s a well-known tax free benefit – an employer may provide one mobile phone per employee for both business and personal use without triggering a taxable Benefit-in-Kind (Section 319 ITEPA 2003).
Sounds simple enough but there are conditions:
• The mobile phone / sim-card must remain the property of the employer
• One phone per employee
• The contract must be between the employer and the mobile phone provider
It’s this final condition that often catches out micro companies that blissfully pay for the director’s mobile phone bill whilst the contract remains in the director’s personal name.
Whilst a seemingly minor technicality the tax treatment of reimbursement of mobile phone costs in this way triggers a costly Benefit-in-Kind Income Tax and National Insurance charge.
It has been reported that HMRC are taking a strict line on this matter, and when discovered, ordering assessments of often 4 years underpaid taxes averaging £500 before penalties and interest.
What’s the solution?
If your mobile contract isn’t in the company name – don’t overly worry – you’re not alone by a long stretch. To keep things practical (and in the real world) we suggest the following:
First of all, call your mobile provider to ask about their procedure for transferring the contract to the company (personally I found this surprisingly straight forward)
If there are extra charges to make the change during your contract, then wait until you’re out of your contract and try again – this is usually the easiest time to transfer your contract and you’re usually offered the same price as personal rate tariffs
Essentially, in our experience, it’s easier and cheaper than most people realise to review your mobile contracts yourself before HMRC do!