On the 30th December 2019 HMRC published updated guidance on the subject of mobile phones provided to employees.
Given that this is inevitably a very popular benefit which promises to be free of Income Tax for potentially millions of users, it is highly desirable that employers fully understand the scope.
Let us step you through seven simple notes which might help to nail this down once and for all……………
- One mobile phone provided to an employee is free from any tax charge, ie. as to the cost of the phone, any line rental, and the cost of all private calls. (The exemption assumes that there is no means by which the employee could convert any aspect of the arrangements into cash. If so, the exemption does not apply.)
- A “mobile phone” for this purpose is apparatus which is clearly designed for the primary purpose of transmitting and receiving spoken messages and is used in connection with a public communications service. Smartphones are therefore “mobile phones”, as we would hope and expect. (Not so long ago HMRC indicated that they wanted to treat smartphones as computers, but they have thankfully backed down from that position.) BUT other devices, which HMRC refer to as Personal Digital Assistants (like tablets) and which might have phone functionality, are not “mobile phones” for this purpose. Employers should not be complacent about what does and does not qualify – if in doubt please speak to us.
- Please be clear, any mobile phone provided to a family member or other non-employee connected with the employee, will always be taxable (on the employee).
- Please also be clear that any sums of money extended to an employee to enable him or her to acquire a mobile phone or to pay for line rental or private calls will always be taxable.
- HMRC recognise that one mobile phone might include two connections (ie two sim cards) to the same number – eg one in a handset and one in a hands-free car phone. This is ok and will be regarded as one mobile phone only. But two connections to two different numbers will be regarded as two mobile phones, only one of which will normally be exempt from incurring a taxable benefit.
- There is, nevertheless, the possibility for two mobile phones to be provided to an employee without any tax charge arising: if one of those is provided explicitly for business use and any private use is “not significant”, then that will be ok, while the second phone remains ok under the normal exemption. (HMRC have unfortunately not defined “significant” for the purposes of private use of the “business” phone, so employers might be advised to forbid private use of that one, except in emergencies, perhaps.) In effect, it is possible to provide one mobile phone for private use and one for business use.
- Disappointingly, if anyone tries to undertake a “salary sacrifice” in favour of a mobile (or rather, “an optional remuneration arrangement” as salary sacrifice is known now), this won’t work and the salary given up will continue to be taxable under separate rules.
It should be noted that none of the above affects the normal principle that bona fide business costs borne by an employee using his or her own mobile phone are capable of being reimbursed free of tax. However, in view of (i) the difficulty, sometimes, of identifying the true amount of those business costs; (ii) the tax-free safety regarding private costs borne when the employer takes care of provision; and (iii) the potential attractiveness of this benefit to many employees, a company mobile can be a very effective perk.
Hopefully this guidance will help to clarify the boundaries for employers on an item which is likely to be of practical interest to many.
If you have questions arising from the above or which aren’t answered by this summary of the guidance, please don’t hesitate to contact your relationship principal here, or send an email to Tax Partner, Chris Barrington.