Mobile Phones, Income Tax and national Insurance Contributions - In Brief
Mobile phones, Income Tax, National Insurance Contributions - we can not get away from any of them.
This article explains a little about how an employer paying some or all of your mobile phone costs effects your tax and National Insurance (NI) liability.
This article focuses on the Income Tax and NI liability from a United Kingdom (UK) Taxation perspective.
Taxation is a very complex area and it is out of the scope of this article to give all the if, buts and wherefores of taxation - that would require a dedicated website all of its own.
What is the definition of a mobile phone ?
For the Tax year 2006/07 onward, the definition of a mobile phone is extended to include apparatus designed or adapted for the principle purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.
This also covers a connection, for example a SIM card which provided independently of a mobile phone - for example a SIM card provided by your employer to be used in a mobile phone that belongs to an employee.
Where apparatus is clearly designed or adapted for the primary purpose of transmitting and receiving spoken messages and is used in connection with a public communications service, the fact that it can also be used for other functions will not prevent it from falling within the meaning of “mobile phone.”
This means that smartphones also fall within the meaning of “mobile phone.”
Devices that are primarily designed and adapted as Personal Digital Assistants (“PDAs”) in the past have evolved over time so that many modern consumer PDAs are likely to be smartphones.
With rapidly changing technology it is not possible to be certain of the definition of “mobile phone” to new or future forms of smartphone.
However it is important to be aware that there are many types of devices that have telephone functionality which do not qualify as mobile telephones - the definition does not cover apparatus that is designed or adapted for a primary purpose other than transmitting or receiving spoken messages, even if that apparatus is also capable of being used in this way.
Examples of apparatus that does not fall within the definition of a mobile phone include satellite navigation devices, devices that are solely PDAs and tablet and laptop computers.
In general, devices that use Voice Over Internet Protocol (“VOIP”) systems to make and receive telephone calls will not satisfy the primary purpose test.
So, now we know (or think we know) what a mobile phone is, as defined by HMRC, how do we work out when a liability to pay Income Tax and National Insurance Contributions ?
To begin with we answer this question with a series of further questions - don't you just hate it when you ask a question and the person you ask answers with a question ? Me too . . .
1) Has your employer supplied you with just one mobile phone ?
2) Has your employer supplied you with more than one mobile phone ?
3) Do you use your own mobile phone and your employer pays the supplier directly ?
4) Do you use your own mobile phone and your employer reimburses you ?
5) Do you use your own Pay-As-You-Go mobile phone and your employer reimburses you for business calls ?
If your employer has supplied just one phone to you (without transferring ownership of the phone) there is believed to be no liability to pay Income Tax or NI Contributions.
Now then - what is the definition of one mobile phone ?
Am I being picky ?
Read on . . .
One mobile phone may consist of two connections - for example two sim cards - to the same number - one being a handset the other being a hands-free mobile phone in a car.
However - two connections to two different numbers is classified as two mobile phones.
A mobile phone provided to a member of an employee’s family, or household is taxable in all circumstances, unless the family or household member is provided with the mobile phone as an employee in their own right.
Money an employer pays to an employee to use their own mobile phone is taxable.
If an employer provides a mobile phone to an employee solely for business use, and private use is not significant, there is no charge to tax.
Consequently, it is possible for an employer to provide two, or more, mobile phones to an employee, without creating a tax charge, if one or more is provided solely for business use and private use is not significant, and only one is provided for private use.
But if two mobile phones are provided for private use, or for mixed private and business use, only one is exempt.
In this last case above - it is up to the employee and the employer to decide which one is exempt and which one is chargeable as a benefit.
If you (the employee) owns the mobile phone but your employer either reimburses you, or your employer pays the mobile phone company directly - the first point of clarification here is: the contract is between you (the employee) and the mobile phone company.
In this category there are further ifs and buts - relating to an earnings threshold of £8 500 per annum.
Whether you (or your employee) earns above or below £8 500 per annum affects two things:
- What to report (to HMRC);
- What to pay (to HMRC);
What is paid is determined by the value of the benefit - this is influenced by such factors as:
- Monthly tariff;
- Private Call Charges;
- Business Call Charges.
And, just to make it simple there are "Exceptions" - where the mobile phone is acquired for business purposes and is only used to make business calls and you earn less than £8 500 per annum there are no reporting requirements, no tax to pay, and no NI Contributions payable.
The author of this article is NOT a taxation expert - this article is intended purely as indicative of the author's understanding of the rules as at 01 December 2012 and as such this article should not be taken as Official and/or Legal advice.
If you have any questions or require a full explanation or clarification of UK Income Tax rules you should consult a qualified Taxation Consultant and / or Accountant.
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