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How to tax employees home telephone reimbursed ??

How to tax employees home telephone reimbursed ??

According to HMRC if an employee is reimbursed for their home telephone (contract between employee and phone company) the amount reimbursed must be added to the employee's other earnings and is subject to deduction of PAYE and NI using your usual payroll procedures.

If a limited company reimburses an employee (whom owns the company and is the only employee) 50% (treated as business use proportion) of their home telephone bill the company will look to record this payment as a 'telephone' expense.

If the 50% reimbursed is then added to the employees salary and included in the net wage calculation then the employee is effectively receiving reimbursement twice which clearly can't be correct.

So therefore should the reimbursement previously paid to the employee and treated as a 'telephone' expense by the company be deducted from the net wage payment to the employee with the net amount being grossed-up through the payroll ?? would then the gross amount be the value reported by the company as telephone expense ??

There doesn't appear to be any specific guidance from HMRC on the actual logic of this and I just can't seem to get my head around this one.

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By eve2206
03rd Jan 2012 00:17

Hi

I guess the 'spirit' of these rules are that the employee should not profit, nor should he be out of pocket.  If you were reimbursing the employee for the cost of the calls made on behalf of the company, then surely that is a legitimate expense that the employee can claim back without any tax implication?  However, doesn't HMRC allow a small charge for use of home office to be classed as an expense by the company which would offset some of the line rental?

The alternative, I guess, is that the employee/company owner should register the phone as a 'business phone' and pay the slightly higher rates and have a separate line for private use.

Just my thoughts, but hopefully someone will provide the correct approach to be followed.

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03rd Jan 2012 00:55

Home telephone would not usually be covered by use of home

Life would be so much simpler if clients actually did things properly, but in these difficult times they understandably want to keep things simple and keep costs down regardless of what the tax rules are.

The 'use of home' allowance would not ordinarily be paid to compensate for home telephone where the registered office of the company (and place of business) is the home address of the employee/director, this would usually be paid to reimburse towards additional consumption of light, heat, etc. arising from work incurred at home.

The client does not want to amend the telephone contract to the company name due to the loss of various discounted rates, and so following HMRC guidance the value reimbursed to the employee should be treated as additional earnings subject to PAYE and NI deductions. 50% of the bills are reimbursed to the employee with no specific recognition of business use i.e. 50% of line rental and 50% of all call charges.

If only business calls were reimbursed there would be no tax or NI implications but 50% of the total phone bills are reimbursed and so treated as additional gross earnings and subject to PAYE and NI deductions which means the net amount payable after deduction is less than the amount already reimbursed to the employee/director, as the employee/director is reimbursed when the telephone bill is paid and not at the end of the month when the wage calculation is completed.

So is the excess of the gross amount already reimbursed to the employee/director and the net wage calculated at the end of the month repayable by the employee/director ??

This would give rise to an advance to the employee/director until repaid which in itself could create an overdrawn directors' current account resulting in additional problems ................

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03rd Jan 2012 08:08

My understanding is that you would calculate the PAYE and NI deduction which should have taken place if the amount reimbursed was put through the payroll (by adding the reimbursement into the P11), When you know the net figure, you can deduct the PAYE and NI element from the employee/director's next salary payment - but there is no need to pay the reimbursement again, as it has already been transferred to the employee/director.  There would only be a loan implication if the director did not normally receive a salary at the end of the month against which the PAYE / NI could be deducted - but this is likely to be small, and perhaps the director could pay the company back by cheque if this is thought to be an issue?

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03rd Jan 2012 08:38

PAYE instructions

If an employer payes the employees personal liability it is called a pecuniary liability and both tax and ni are due in the actual week/month of payment.

The amount of the payment is added to gross pay for the calculation of deductions, and is then deducted again from the net pay so it is not paid twice. If the operation of the tax code etc that week/month does not result in any liability that is fine.It remains part of the gross pay to date si will eventually be taxed if applicable.

Claiming business expenses is a separate issue and should be done by the emplyee in the usual way.

 

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By eve2206
03rd Jan 2012 15:06

Sorry, I did get a bit confused there for a minute.

This was a useful question - I've spent a bit of time looking at it on HMRC website.  However, it seems to indicate that the amount should not be subject to PAYE ( just the NICs).  You all mention PAYE above - have I missed something, again.

thanks

extract from HMRC:

For company directors or employees earning at a rate of £8,500 or more per year, unless the exception outlined below applies:

report on form P11D - section Badd the value of the benefit to the employee's other earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

For company directors or employees earning at a rate of £8,500 or more per year:

the value to report on form P11D is the sum of rental and all call charges (both business and private)the value on which Class 1 NICs are due is the sum of rental and private call charges (you should exclude business call charges)

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03rd Jan 2012 15:47

Reimbursement to employee should be subject to PAYE

Where the supplier is paid directly then the value of the benefit is not subject to PAYE, only Class 1 NIC, however where the employee is reimbursed (as is applicable in this case) the value of the reimbursement is subject to both PAYE and NIC through the payroll.

As the employee is reimbursed at the time the phone suppliers bill is paid which is before the payroll is processed at the end of the month, the employee will have received an advance which according to previous comments is ok so long as the net amount is deducted from the same months net wage.

 

 

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