Mobile phones are now a routine business expense for employers, but the tax treatment varies depending on how they are provided. Some employers provide employees with a company mobile, while others pay or reimburse the employee’s own phone costs.

From a benefit in kind perspective, whether the contract for the phone is in the employer’s name or the employee’s name makes a big difference to how and if the employer needs to report the benefit to HMRC.

Employer provided mobile phones

In what many employees regard as a ‘perk’, where the contract for the mobile phone is in the employer’s name, both the line rental and all calls (both business and private) are exempt from both Income Tax and National Insurance Contributions (NIC). It does not matter whether or not the employee pays a contribution towards the calls – the total bill is exempt. This can also include the provision of a SIM only contract (as long as the contract is in the employer’s name) and any hands-free kit owned by the employer.

Until 6 April 2006, there was no limit on the number of mobile phones that could be provided and many company directors took advantage of that to provide company mobile phones to several family members tax free. Any phones provided before the rules changed still qualify for that benefit, although it would seem unlikely that many employees would still have the same phone 20 years later.

For phones provided on or after 6 April 2006, the exemption has generally been limited to one mobile phone per employee. However, additional phones provided wholly for business purposes may still be exempt, provided any private use is not significant. 

Employee-owned mobile phones

The position becomes more complicated when the contract for the mobile phone is in the employee’s name, and the tax and NIC treatment depends on whether the employer pays the supplier directly or reimburses the employee.

The general principle is that the line rental and private calls are subject to Income Tax and NIC. The line rental (along with any inclusive tariff minutes) is charged in full unless the phone is 100% for business use, as the rental would be needed to make even 1p of private calls.

Where the supplier is paid directly by the employer, the cost of line rental and private calls needs to be reported on Form P11D for tax purposes (no action is needed for business calls). However, as this is the employee’s liability, Class 1NIC should also be charged via the payroll. Under the Real Time Information (RTI) rules, the payroll entry needs to be reported when the supplier is paid rather than at the end of the tax year.

Where the costs are reimbursed to the employee, the cost of line rental and private calls needs to be charged to PAYE and Class 1 NIC via the payroll.  Again, under the RTI rules, the payroll entries need to be recorded in real time.

Unsure of whether it is a company or employee-owned phone?

The key issue is the contract for the phone, as this will show whether it is an employer provided mobile or an employee-owned mobile. It does not matter whether the employer’s name is in the billing address – it is the name on contract that matters. Best practice would be to keep a copy of the contract details on file in case of an HMRC check.

For more information about how to treat a particular mobile phone scenario, you may HMRC's guidance on mobile phones useful.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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