In the good old days of the landline, sorting out phone expenses was simple, business landline at the office for business, home landline for personal. In the modern days of the smartphone, things are much less clear cut.
Few people want to carry around two mobiles, one for business and one for personal, it’s much easier to use the same phone. The mobile has become an essential tool for managing both business and personal life in a multitude of ways. But when business and personal use is so intertwined, how do you account for these mixed up mobile expenses?
The first thing to remember is that mobile expenses are treated differently depending on whether you have a sole trader business or a limited company.
For a sole trader, you are your business so it’s a little more straightforward. You can include your phone bills but then you need to discount the personal use.
This doesn’t have to be complicated or done on a call by call basis. All you need is a logical method that you can document and explain. You can take two or three months’ worth of bills and go through the calls to work out what portion are personal. If you work out the personal calls as a percentage, you can apply the same percentage to your phone bills for the rest of the year. It’s worth reviewing the percentage on an annual basis. But you don’t have to use this exact method; you just need to be able to justify your particular figures.
For a limited company things are a little more complicated because you and your company are separate. For tax purposes you are viewed in the same way as an employee of the company, so there’s the potential for a benefit in kind resulting in extra personal tax.
1. Company Phone Contract
Recent changes mean that the company can now provide each employee with one mobile phone or SIM card without it being a benefit in kind. But – the phone contract must be in the name of the limited company.
Personal use is allowed, but it should be “reasonable” not “excessive”. If you have an existing mobile contract it could mean transferring it to the company name. It could also mean paying more as business contracts are usually a bit more expensive.
The phone itself will count as an asset of the company.
2. Personal Phone Contract but Company pays
But what about if the phone contract is in your own name, but it’s paid for from the company account? In this case it does count as a benefit in kind. It has to be reported on the P11D and there will be Class 1 NIC to pay via the payroll on this benefit.
3. Personal Contract reimbursed by Company
How about if the phone contract is in your name, you pay for it yourself, but claim the money back from the company?
In this scenario you are reimbursed for the expenses via the payroll. You have to deduct and pay PAYE and Class 1 NIC on the value of the monthly contract and any personal calls that are over and above the monthly tariff. If you have business calls above the monthly tariff these must be declared on the P11D, but there is no additional tax to pay.
An alternative option would be to go through the your bills each month and reclaim any business calls. This would not cause any benefits in kind. However there might not be anything to claim if these calls end up being covered by your monthly tariff call allowance.
What’s the best option?
The solution you choose will really depend on how many business calls you need to make and whether you’re already tied into a personal contract.
If you already have a personal contract and the calls you make are for work are easily covered by your monthly tariff, then it might be easier not to claim. Or could just claim when the calls push you over your tariff minutes.
If you’re in the market for a new phone contract or you have a lot of business calls it’s probably easier to bite the bullet and arrange a contract via the company.
The middle ground of reimbursing contract costs and personal calls via payroll is not going to be worth the extra tax and hassle for many people.
But what about VAT?
For the VAT registered sole trader, just include the VAT on your business percentage of calls. For a limited company with a company phone contract you can include all the VAT, otherwise for a personal contract it’s the VAT element of the business calls.
Sole Trader – work out your personal use percentage and deduct that from the mobile bills.
Limited Company – The easiest option is to have a company phone. If you’re covering the cost of a personal contract there will be tax due on the benefit and there may be P11d reporting. However claiming just the business calls avoid this.