Mobile phones and PDAs* provided to Employees (including Directors) - When are they tax free?
*A PDA is a Personal Digital Assistant such as a Blackberry or device with similar functionality e.g. combines functions of a mobile phone with many of the functions associated with a computer.
Mobile Phones
There is no charge to tax on one mobile phone provided to an employee. This includes any line rental or the cost of any private calls made for that phone paid for by the employer. The phone contract must be between the employer and phone company.
(This exemption is under s319 ITEPA)
A mobile phone provided to a member of an employee’s family or household is taxable in all circumstances unless the family or household member is provided with the phone as an employee in their own right. Money an employer pays to an employee to use their own phone is taxable.
If an employer provides a mobile phone to an employee solely for business use, and private use is not significant, there is no charge to tax.
(This exemption is under s 316 ITEPA)
Therefore it is possible for an employee to be provided with two mobile phones by an employer without creating a tax charge. One phone can be provided for private use (tax exemption under s319 ITEPA) and the other phone provided solely for business use (tax exemption under s316 ITEPA).
If the employer provides two phones for private or both have mixed private and business use then only one phone is exempt. The employee and employer decide which phone is exempt and the other phones costs are chargeable as a benefit in kind.
If the phone is in the name of the employee and the employer pays the phone provider direct then the exemption for a single mobile phone will not apply. The amounts paid must be apportioned between business use and private. The basic monthly airtime tariff will always be personal if the phone is in the name of employee. Therefore only business call charges not covered by the monthly tariff can be claimed as business expenses. The private element should be treated as salary subject to PAYE/NIC.
PDA (Personal digital assistant)
A PDA such as a Blackberry is not a mobile phone and if provided to an employee must be used solely for business use (and private use is insignificant) to be exempt from tax. PDA contract must be between employer and provider of PDA.
If a mobile phone is provided for personal use and a PDA is provided to an employee and used solely for business then both will be exempt from tax.
If two PDAs are provided to an employee then only the PDA used solely for business will be tax free. The cost of the other PDA which has private use will be taxable and should be included on the P11d.
Please contact us at Edwin Smith if you require further advice.
