Claiming mobile phone expenses as part of your business

What's the standard policy for mobile phones expenses? Can you claim back anything from the tax man for business mobile phone usage?

You do not say whether the business in question is a limited company or a sole trader or partnership. It makes a difference.

If the business is not a limited company only the business proportion can be claimed, so you will have to keep a record of business calls to justify a claim if the Revenue challenges your figures.

A typical solution for the sole trader wanting to claim mobile phone expenses is to take three to four months’ worth of bills, analyse the calls, and then work out the ratio of personal versus business related. You can then apply this ratio as a percentage of your phone bills for the rest of the year. You may find it useful to review the ratio on an annual basis.

If you are VAT registered, you need to include the VAT only on the business portion of your calls.

For Limited companies, everything depends on the type of mobile phone contract

If the mobile phone (or sim card) is registered in a company name, all the costs can be claimed. The main proviso is that ‘personal use’ must be ‘reasonable and not excessive’. The hardware (the phone itself) counts as a company asset. VAT can be claimed on all costs.

If the phone contract is personal (i.e. not registered to the company) then there are two main ways to treat the expense:

  1. If the company pays for the phone and bills, then it is counted as a ‘benefit in kind’ and the costs have to be reported on what is called the P11D form and there are NICs to pay.
  2. If you pay and the company reimburses you, deductions have to made on PAYE and Class 1 NICs on the value of the monthly contract plus any personal calls that may add costs over the normal monthly tariff, e.g. if you use data whilst abroad on a personal holiday.

For both of these scenarios VAT can be claimed only on business costs.

As you can see, for Limited companies with several employees using mobile phones as part of their work, it starts to get complicated and so ideally you need an accountant to work out the expenses for you.

Please go here to get HMRC’s take on expenses for employers who provide mobile phones to their employees.

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Adam Wayland

Adam was Editor of SmallBusiness.co.uk from May 2006 to Jun 2008 and prior to that was staff writer on sister publication BusinessXL Magazine.

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