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Mobile phones - tax free benefit or not?

One problematic area is where directors and employees have taken out contracts personally and the employer refunds the costs. This is the settlement of a personal liability and is not an exempt provision of a phone. It is important that contracts are in the employer’s name.

Even if contracts are properly set up, whether or not there is a benefit is not entirely clear. The tax position will depend on what, precisely, it is. HMRC’s view is that a Personal Digital Assistant (PDA), eg a Blackberry, is not a mobile telephone as defined, in that PDAs also include computer functions. The exemption from tax for a single mobile does not therefore extend to PDAs, which are taxed in the same way as computers. The good news is that as long as the PDA is provided solely for business use and any private use is not significant, the provision of the PDA will be exempt anyway.

However, if an employee is provided with two handsets the position is more complicated. If the provision is of a phone and a PDA, then if one handset is used solely for business and the other has both business and private use, the distinction between PDA and standard mobile will be important.

If both handsets are mobiles, there should be no tax charge.

However, if two PDAs are provided, the exemption does not apply so only the PDA used solely for business will be tax-free and the cost to the employer (including rental, call charges, insurance, VAT etc) of the provision of a PDA which has private use will be taxable and should be included on the P11D. If both handsets have significant private use, both will give rise to a taxable benefit.

The moral here is that it is more tax-efficient for the employee if:

  1. the employer does not provide two PDAs but rather one mobile and one PDA or two mobiles; and
  2. any private use of a PDA needs to be ‘not significant’ to avoid a tax charge.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552. 

 

 

Date: 8th June, 2010
Author: Cathy Corns

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