We discuss mobile phone expenses – what can be claimed, what is exempt and what to report for sole traders and limited companies in the UK.
Everyone has a mobile phone these days and this now essential device inevitably ends up being used for work purposes at some point or another. But what expenses can you claim and what do companies need to report on these claims?
As with most areas of claiming expenses, mobile phone expenses differ between self-employed sole traders and limited companies, so we’ve outlined the rules for both below along with different scenarios you might be in.
If you would like to discuss your individual circumstance further then please don’t hesitate to get in touch.
Mobile phones expenses for sole traders
If you have a phone that’s solely for business use, you can claim the whole cost of both the handset and contract charges.
For many sole traders, however, it’s more likely that you’ll have a phone that is used for both personal and business calls. In this case, as with most expenses, only the business portion can be claimed.
For example, if 75% of your calls are for business then you can only claim for 75% of the calls. If you’re on a phone contract, this is easily calculated as 75% of the monthly charge.
Mobile phone expenses for limited companies
The rules for mobile phone expenses are different for limited companies depending on who owns the phone, whose name the contract is in and who pays for it.
Phone and contract both in company’s name
In this scenario where the phone and contract are in the company’s name, the employee or director is exempt from paying tax or national insurance (it’s not classed as a benefit in kind) and it doesn’t need to be declared. Also, it is a fully allowable expense for the company so can reduce the corporation tax bill.
This is true regardless of the personal use, provided that phone and contract are in the company’s name. The company owns the handset and is responsible for it and the contract. This is only allowable for one phone per employee.
This does not alter the business use exemption of additional phones. So, if an employee had a second phone (again registered in the company’s name) expenses can be claimed if it is used solely for business use and private use is not significant.
This could be the case when an employee who often travels aboard uses a separate phone in certain countries to take advantage of different tariffs.
Phone contract in the employee’s name, paid by the company
If the phone and contract is under the employee’s name and the company pays phone tariffs directly to the provider, then this will be classed as a benefit in kind. The company must report the cost on the P11D and the employee pays Class 1 National Insurance through payroll.
A P11D is the form that a company must submit to HMRC at the end of the year for each employee who has received any expenses or benefits. This tells HMRC how much Class 1A National Insurance the company needs to pay for these expenses and benefits.
Personal phone and contract in employee’s name
If your company reimburses your phone charges, these are the regulations set out by HMRC.
If the monthly tariff is reimbursed, this is a benefit in kind so Class 1 National Insurance and PAYE tax must be deducted through payroll
If any private calls that incur charges in addition to the monthly tariff are reimbursed, this is also a benefit in kind, so Class 1 National Insurance and PAYE tax must be deducted through payroll
If any business calls that incur charges in addition to the monthly tariff are reimbursed, then no tax or national insurance deduction is required. However, the company must report the amount on the P11D form
For pay as you go mobiles, if any business calls are reimbursed no tax or national insurance deduction is required but the company must report the amount on the P11D form
These are clearly the most complex rules regarding mobile phone expenses and those which require the most admin. This is why most companies choose to use one of the other options.
Lava Sky Accounting offers bookkeeping and accounting services for both sole traders and limited companies, contact us today for a free consultation.