We are a housing association and pay certain staff a £15/month allowance for a mobile phone which their job contract insists they must have. The allowance is taxable at source so staff only receive about £10 net of tax & ni.
1) Can staff reclaim business use of a phone on their tax returns and what evidence of business use might they need to supply to HMRC if asked?
2) Might a better solution be for us as a company (and for staff) to enter into a "Business Mobility" deal with someone like Vodafone to supply handsets and 160 free minutes a month for £15/month per phone? Does anyone have any experience of this kind of thing and its benefits and pitfalls!?
Thanks for your help.
Dave Collier
Replies (6)
Please login or register to join the discussion.
Yes they can recover the tax
Yes where the employee has paid for business calls out of the £15 a month they can claim back the tax. However, the Ees and Ers NI is lost.
The claim can be made through a tax return.
Strictly, they need to identify the cost of the business calls. This could be done by having an itemised bill it they on a fully metered contract. With pay as you go this is more complex as they might have to keep their own record. Perhaps some reasonable basis of estimation could be applied.
Technically, if they are on a fixed monthly fee and they do not exceed the inclusive minutes they do not have a claimable cost as the business call has not resulted in cost to them if they would have had a mobile anyway. (The only adults I know without mobiles are drawing their pensions)
Similar situations exist where employees receive a car allowance in place of a car. In tat case I think HMRC have a special claim form that saves people having to complete a full return. Perhaps this can be used for phones as well.
If you gathered data on the typical mobile phone usage and its cost you could discuss a dispensation relating to part of the £15 with HMRC. In the long run the dispensation route would be the best.
Form P87
Dave
Your employees are receiving additional salary rather than an expense allowance, so the mobile phone expense would be entered in Section 4 Other Expenses, with nil entered under reimbursements received. (I'm looking at the 2006 form, I think it's more or less the same).
If the question arises, it's important that all business calls are described as necessary in the performance of duties. HMRC have a hair-splitting distinction between what enables the employee to perform duties, and the actual performance. For example, they might argue that phoning someone to arrange a meeting is not actual performance, and therefore not allowable as an expense. So it may be necessary to make explicit that arranging meetings is part of the duties.
It's still option 2 for me!
Option 2 a better solution
You can provide a mobile phone and avoid employer's ni on the £15 pm, and there will be no taxable benefit on the employee.
You have a choice of excluding private use (other than "insignificant") under s316 (see http://www.hmrc.gov.uk/manuals/eimanual/EIM21613.htm ) or permitting private use (s319 http://www.hmrc.gov.uk/manuals/eimanual/EIM21779.htm ) Presumably you will want to restrict the private use so that it does not consume the free minutes.
If you are vat registered, full vat may be recovered if there is no, or insignificant private use; otherwise, if employees pay for private use, account for output tax on this amount; or if they do not pay for private use, the input vat must be apportioned.
I agree with David's comments and add
There is a form P87 "Tax relief for expenses of employment" or there are the self-assessment employment pages.
But Dave, would there be so much admin involved? I'd suggest that provision of a contract such as you suggest, with the employee required to top up at their own expense if the minutes ran out before month end, and bearing in mind you would not have to worry about tax implications or tracking business/personal use, would be fairly straightforward? A simple spreadsheet, recording who has which phone; employee signs for phone and agrees to look after it, return it when leaving the employment etc.