HMRC EXTRACT

You provide an employee with one mobile phone

Definitions or restrictions

You make one mobile phone (or SIM card) available for use to an employee. The phone can be used for both business and private calls. The contract is between you and the mobile phone operator.

The same rules apply whether you pay for rental charges, business calls and/or private calls.

The definition of a mobile phone is a device that is designated or adapted for the 'primary purpose' of making and receiving phone calls over a public telecommunications network, even if that device can be used for other purposes.

Other devices that have telephone functionality (for example iPads, tablets, laptop computers and satellite navigation devices) use the internet to make and receive telephone calls and so do not meet the 'primary purpose' test to be classified as a mobile phone.

EIM21779: Mobile telephones -exemption for 2006-07 onwards: details

What to report, what to pay

You have:

  • no reporting requirements
  • no tax or NICs to pay

Employee's own mobile - you pay the supplier directly

Definitions or restrictions

You cover the costs of an employee's mobile phone by paying the phone company directly. The contract for the phone is between the employee and the mobile phone company.

What to report, what to pay

For company directors or employees earning at a rate of £8,500 or more per year, unless the exception outlined below applies:

  • report on form P11D - section B
  • add the value of the benefit to the employee’s other earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

Work out the value to use

For company directors or employees earning at a rate of £8,500 or more per year:

  • if you pay no more than the employee's monthly tariff, then the value to use for both P11D and Class 1 NICs purposes is the full amount you pay to the phone company
  • if you pay any private call charges that aren't covered by the employee's monthly tariff, then this amount should also be included for P11D and Class 1 NICs purposes
  • if you pay any business call charges that aren't covered by the employee's monthly tariff, then you can disregard them for Class 1 NICs purposes but you should report them on form P11D unless you have a dispensation covering these amounts

Exceptions

If the employee's phone is acquired for business purposes and is only used for business calls, then the following rules apply.

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D - section N - unless you have a dispensation for this item
  • you have no tax or NICs to pay

Dispensations

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Employee's own mobile - you reimburse the employee

Definitions or restrictions

You cover the costs of an employee's mobile telephone by reimbursing the employee. The contract for the phone is between the employee and the phone company.

What to report, what to pay

Reimbursements of an employee's monthly mobile phone tariff count as earnings, so:

  • add them to the employee's other earnings
  • deduct and pay PAYE tax and Class 1 NICs using your usual payroll procedures

If you reimburse call charges in excess of those included in the employee's monthly tariff, then:

  • for amounts relating to private calls, you must add them to the employee's other earnings and deduct and pay PAYE tax and Class 1 NICs through your payroll, as above
  • for amounts relating to business calls, you have no tax or NICs to pay but for company directors and employees earning at a rate of £8,500 or more per year you must report on form P11D - section N - unless you have a dispensation covering these amounts

Dispensations

Work out the value to use

The value to put through your payroll is any amount of the employee's monthly tariff you reimburse plus the cost of any additional private calls you reimburse.

The value to report on form P11D is the cost of any business calls you reimburse that aren't covered by the monthly tariff.

EDWARD DEVILLE'S TAX MANUAL EXTRACT

HOME TELEPHONES

NB: This section applies to Home telephones with itemised bills. See separate section on Mobiles.

1. EMPLOYER AS SUBSCRIBER TO TELEPHONE COMPANY (Where an Employer is the ‘subscriber’ and therefore the person liable to pay the telephone rental and any other charges).

In these circumstances, the employer is not meeting any pecuniary liability of the employee. No taxation implications will arise where the employee concerned is paid at the rate of £8,500 p.a. or less.

Where the employee’s total emoluments are at a rate exceeding £8,500 p.a., then a taxation liability may arise, broadly in circumstances where there is private use of the telephone which is not reimbursed by the employee.

The employee is initially chargeable to tax on the total expense incurred by the employer (the cost of the line rental and the cost of all calls) less any sum that the employee may make good to the employer for private use of the telephone. The employee may then get a further deduction under the expenses rules for the actual cost of calls made in the course of the duties of the employment.

Class 1A National Insurance Contributions are payable by the employer on the cost of the line rental, and, unless the cost of private calls are made good by the employee, the cost of the calls.

However, HMRC have said that the benefit of the telephone line will be exempt from tax, and from Class 1A National Insurance contributions if:

The employer’s sole purpose in providing the telephone is to enable the employee to perform their duties, and

the employee’s private use of the benefit of the telephone is not significant.

The exemption will apply where:

  • there is a clear business need for the employer to provide the employee with a telephone, and
  • the employer has internal controls to monitor, control and minimise the cost to him/her of private use, and
  • the employer has no intention to reward the employee.

Circumstances where the exemption is likely to apply include cases where an employer provides a telephone line so that the employee may make or receive calls which are a vital and central part of the duties of the employment, such as:

teleworkers, where a telephone line at home is provided for remote computer working or telephone business

employees such as care workers in residential homes for the elderly or disabled, or hospices, whose daily duties may require contact with the emergency services or contacting relatives of those they care for.

It would be advisable to discuss potentially eligible circumstances with the Tax team.

2. EMPLOYEE AS SUBSCRIBER

Where the employee applies for the provision of the telephone, he is the subscriber and will generally be liable to tax in respect of any payment by the employer of his private calls and the telephone rental. This applies however the payment is achieved, whether by reimbursement or by direct settlement to the ‘phone company. It also applies whatever the level of remuneration of the employee.

PROCEDURES

Please treat payments/reimbursements of this sort as follows:

  • EMPLOYEE SUBSCRIBERS

1. Strictly controlled reimbursement of business calls only. No requirement to report on P9D or P11D as we hold a dispensation.

2. All payments or reimbursements of rentals and private calls to be reported on P9D or P11D. For example, where H.C.C settles an employee’s home telephone bill and receives an amount from the employee to cover the private calls and rental. Here, the total cost should be entered on P11D/P9D leaving the employee to claim what he feels to be the allowable element when agreeing his tax assessment with HMRC.

NB: Given the ‘dispensation’ mentioned under 1, it is naturally helpful from an administrative point of view if employees settle their bills direct and claim back the business element from H.C.C., thus avoiding completion of these forms.

  • NATIONAL INSURANCE

Payments to employees, (or on their behalf), in relation to Rentals and private calls are liable to Employers NICs. Again, adherence to the dispensation will avoid this problem and the on-cost.

  • EMPLOYER AS SUBSCRIBER

If the employee’s emoluments are at the rate of £8,500 or less, there is no requirement to report.

If the employee’s emoluments exceed that level, it is necessary to report the payment of bills on the employee’s P11D, unless the exemption described above applies.Where a reportable benefit applies, so will Employers Class 1A NIC.

MOBILE TELEPHONES

No charge to tax arises on the provision of one employer-owned Mobile Telephone per employee, even if used privately.This exemption is confined to one instrument per employee.

A tax liability can still arise however where the employer provides phone cards, or makes payments for the private use of an employee’s own mobile ‘phone.

Similar principles apply here to those described in ‘Employee as Subscriber’ under the section for HOME TELEPHONES. Strictly controlled payment/reimbursement of business calls will not result in any necessary entries on P11D/P9D. Any settlement of private calls and/or rental or connection will require to be reported.

However, be careful about reimbursing business calls where ‘free air time’ etc arrangements exist. Employees should only receive reimbursements to the extent that they have sustained an identifiable cost and this can be evidenced by itemised documentation. With most billing arrangement these days that is not a feasible proposition.