What Are the Rules for Mobile Phone Usage by Employees and Directors?
As with many business tax regulations, it is not always straightforward. This is a basic guide covering some of the relevant points.
In broad terms, your business cannot simply take over the payment of your employees or directors personal mobile phone expenses without causing potential tax implications for your company and the employees or directors.
Ideal Situation – What You Should Implement if Your Company Needs to Supply Mobile Phones for Your Employees and Directors for Business Purposes
- Ensure that you supply only one mobile phone or one SIM card to each of your employees and directors.
- The phone contract should be between your limited company and the supplier.
It is acceptable for directors and employees to use mobile phones provided by the company for personal calls as long as the usage is reasonable and not excessive.
By adhering to these rules, you can apply the full cost of the phone and contract as a tax-deductible expense for corporation tax. If your limited company is VAT registered, you will also be able to reclaim any VAT incurred on these expenses. There would be no tax implications for your employees and directors.
What If the Rules Above Are Not Followed?
Let’s discuss some scenarios
If the Personal Usage Is Deemed Excessive
You can still pay for the full cost of the mobile phone expenses from your limited company, but:
- You will need to separate the personal use from the business use and only claim the business-related expenses for corporation tax purposes.
- For VAT, you can only claim the VAT applicable to the business proportion.
- Accurate records of the apportionment must be maintained, which in practice may not be easy to do.
Additionally, the mobile phone would most likely be considered a taxable benefit by HMRC, and the value of the personal use would need to be reported to HMRC. This would, in turn, create tax implications and costs for the company and the employee or director.
What If the Mobile Phone and Contract Bill Is in the Employee’s or Director’s Personal Name?
There are a couple of options which we will discuss below
The Employee or Director Pays the Full Bill Personally and then the Company Reimburses the Employee or Director for the Business Calls Only
- This is an allowable corporation tax-deductible expense, and the company can reclaim the VAT (if VAT registered) on the business calls.
- You need to provide proof of the business calls claimed, usually by furnishing an itemised bill that highlights the business calls.
- You cannot claim a portion of the line rental or other charges—only the business calls.
- There would be no adverse tax implications for the employee or director; they would not have to pay income tax or NICs on the reimbursement.
The Company Directly Pays the Whole Personal Mobile Phone Bill
This option is the least favourable of these two options.
You are allowed to pay the entire personal mobile phone bill using funds from your limited company, but this does cause higher tax and administration burden:
- The company will have to pay NICs (less any identifiable business calls) and show this as a Benefit In Kind charge on the employee’s or director’s year-end P11D.
- The company can only claim a corporation tax deduction for legitimate business calls and reclaim VAT on these calls only.
- Detailed proof of business calls must be provided, usually via an itemised bill highlighting the calls and associated VAT charges.
- The employee or director will have to pay a BIK charge as part of their personal income tax.
Summary
As demonstrated above – you will no doubt agree, it is generally best to have the mobile phones and contracts in the limited company’s name. This minimises the administrative burden on the company and eliminates the potential for company or personal NIC concerns for both the company and its employees or directors.
Some Additional Information – click the links below
Expenses and benefits: mobile phones
How do I claim expenses for business telephone calls (and the phone itself)?
UK tax implications of using a personal mobile phone for business purposes
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