Mobile phones and tax

When an employer incurs costs for the provision of mobile phones to employees it is important to understand the correct tax treatment of these expenses. This includes costs for phones provided to employees and reimbursement of employee’s own phone costs.

As a general rule, the provision of one mobile phone or SIM card to a director or employee for private use is exempt from reporting requirements, tax and National Insurance. The exemption covers the phone itself, any line rental and the cost of private calls paid for by the employer on that phone. The phone contract must be between the employer and the supplier.

If the telephone expenses are not exempt, then they must be reported to HMRC, and employers may have to deduct and pay tax and National Insurance. Employee’s mobile phone expenses do not have to be reported if they are part of a salary sacrifice arrangement.

For example, if an employee arranges the phone but the employer pays the supplier then the employer must:

• report the cost on form P11D; and
• pay Class 1 National Insurance through payroll.

HMRC also make it clear that there remain devices that have telephone functionality which do not qualify as mobile phones. The tax exemption applies only to devices primarily designed for voice communication. For example, the rules do not apply to tablets, PDAs and other similar devices.