Are mobile phone purchases and running costs tax deductable?
Q: I have a query relating to mobile phone contract expenses. The contract I currently have offers me a better deal than most although it is a SIM-only contract. I cannot find anything out there as good as this deal, but the current phones/handsets we are using are very old. In some cases, I fear they may become unusable. I am thinking of replacing the handsets for the company director and secretary, and this will allow me to keep my current contract. I am considering buying the Apple iPhone 5, which costs around £590.00 each, including an Apple Care Plan, from the Apple store. My question is this: Can I claim the total amount as a company expense?
A Quick Overview of the Rules Relating to Mobile Phones
HMRC expenses rules state that the company can provide staff with ONE mobile phone for business purposes, which is exempt from tax as a benefit in kind (BIK) and an allowable expense against corporation tax. However, if an employee has more than one handset, or handsets are provided to family members who are not employees of the company, then these extra handsets will be taxed as a Benefit in Kind (paid by the employee), although the business would be able to claim the cost of the additional phone as an expense against corporation tax.
HMRC accept that most businesses will provide staff with ONE mobile phone each. If the company purchase the phone and the contact is in the company name then the company can claim expenses relating to the purchase, contract, and call costs on these mobile phones. If the phone is not in the company name, then the company cannot claim for the purchase of the handset or the costs of the tariff itself. For example, if the tariff costs £30 per month before making business calls, but there was no marginal cost of the business calls, then you cannot claim any element of the line rental as an expense. This is because HMRC deem that you would be paying for this anyway.
Q: So are you saying that the phone contract should be in the company name?
- Yes, definitely, you should buy the phone in the company name, and then you can claim for the cost of the phone, the contract tariff, and the cost of the calls over and above your tariff. You should pay for the purchase of the phone and for the contract and/or calls through the company business account or with the company credit card. This way, it is clear that the company purchased and is running the phone. Ensure that the bill is in the company name and that payment for it is from the company account.
- Remember, that you can buy multiple phones for different members of staff, but if you buy two phones for one member of staff this will be a BIK (of the staff member).
Q: What sorts of phones are acceptable?
- Since 2009, Blackberry, personal assistant devices (PDAs) and iPhones have been classified mobile phones for the purposes of legislation.
Q: What if I purchase a pay-as-you-go phone in the company name?
- If you purchase a pay-as-you-go phone in the company name, you can claim the cost of the handset as an expense. You can claim for multiple phones for different employees so long as you do not purchase more than one phone for each employee. However, although an additional phone for an employee is a BIK, it can still be a company expense as well.
- Regards pay-as-you-go top ups: ensure that you log all calls that are relevant to business. Remember that you should only claim for calls made for business purposes, and if asked, you would need to be able to produce records to prove that the calls for which you are claiming were business related.
What if I purchase a mobile phone and contract in my personal name?
- Purchasing a mobile phone in your personal name means that you cannot claim the cost of the handset purchase as a company expense. If you take on a phone contract in your personal name, you will not be able to claim the tariff as a business expense either. You can only claim the additional call charges that are business related and you must ensure that all call charges that relate to business are highlighted on the telephone bill in order to make a claim as a business expense.
- In order to avoid this situation, if you are thinking of purchasing a handset, you can buy the contract in the business name and use it for business and personal calls. Remember, HMRC does allow one phone and contract per employee, that is, the full cost of purchase and tariff, including call costs. My advice is that, to avoid any hassle, buy the phone and contract in the company name.
What if I purchase a pay as you go phone in my personal name?
Ditto the above really, definitely avoid purchasing a mobile phone intended for business using your personal bank account or credit card. You should definitely try to make sure that all business purchases are through the company. You could itemise calls made for business and then put them against expenses, but this is a very dangerous way of going about things. My advice is to buy a phone for business purposes and make all business and personal calls through it.
A Quick Word about VAT
Just a quick comment on the VAT: If the mobile phone is for business purposes only, then all the input VAT is reclaimable. If there is some personal usage then only an apportioned amount of VAT is reclaimable. However, this does not apply with the Flat Rate VAT scheme, as there is no input VAT.
Clearly, it is much better to purchase a mobile phone / contract in the company name through the company bank account or with the company credit card. Each member of staff may have one mobile phone handset. This is best practice, and ensures that you can claim the maximum in expenses and the company can claim the cost of the whole bill, even if there is an element of personal calls included. There can be no better way, just make sure you buy your mobile phone through the company, and that the contract is in the company name.
If you are married or in a civil partnership and you are both employees of the company this would mean that each of you can have a handset on the company. This is a good perk, both for you and for your company, so take advantage of it.