These questions are being answered by Learn HR, a market leader in the provision of HR and payroll training and nationally-recognised professional qualifications.
Q: Does the tax exemption for mobile phones extend to paying the costs of our employee’s own phones?
A: Section 319 of the Income Tax (Earnings and Pensions) Act 2003 specifically removes any liability for income tax on the provision of a mobile phone that is placed at the disposal of an employee or a member of the employee’s family or household.
The exemption applies to the telephone itself, to the rental and call charges met by the employer under a contract between the employer and the service provider and, if the phone is installed in a car, van or heavy goods vehicle, to any associated hands-free kit and installation costs.
There is no condition imposed relating to the extent of the use of the mobile phone for private use. The exemption applies if it is provided exclusively for private use.
However, there are a number of other situations where the exemption does not apply.
- If the mobile phone provided by the employer can be given up by the employee in exchange for a higher wage or salary, even if the employee does not take up the cash option, it is liable for tax on its “money’s worth”, i.e. the amount that would be paid in lieu of the benefit. The benefit is reported in Section A of form P11D, or Section A(2) of form P9D.
- If the employer provides a non-cash voucher to obtain a mobile phone, or a “pay-as-you-go” voucher to pay for the cost of the phone calls, there is a tax charge based on the cost to the employer in providing the voucher, and a liability for Class 1 NICs at the time the voucher was provided. The benefit is reported in Section C of form P11D, Section B of form P9D.
- If the employer buys the mobile phone and gives or sells it to the employee so that ownership is transferred to the employee, the benefit is valued according to the market value of the phone at the time ownership is transferred and the amount is reported in Section A of form P11D. There is no P9D reporting requirement for lower-paid employees, i.e. those with an earnings rate of less than £8,500.
- If the mobile phone belongs to the employee and the employer reimburses the employee’s costs in acquiring the phone, the payment must be made through the payroll and both tax and NICs deducted.
- If the mobile phone belongs to the employee and the employer pays the employee’s personal bills direct to the service provider, the amount paid is reported in Section B of form P11D or Section A(2) of form P9D. A liability for Class 1 NICs arises at the time the payment is made.
- If the mobile phone belongs to the employee and the employer reimburses the employee’s business call charges only, the payment is reported in Section N of form P11D. There is no P9D reporting requirement for lower-paid employees. There is no liability for Class 1 NICs. (A dispensation would avoid the reporting requirement here.)
- If the mobile phone belongs to the employee and the employer reimburses the employee’s private call charges, the payment is reported in Section N of form P11D or Section A of form P9D. A liability for Class 1 NICs arises at the time the payment is made.
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