Cutting Your Tax Bill on Your Mobile Phone

Mobile phones have become something of a necessity to a vast number of people in the UK and around the world. They can be invaluable for personal use but for many individuals, work would not be possible without a mobile telephone. The downside, of course, is that there can be a large associated cost. You may be pleased to discover, therefore, that considerable tax savings can be made on your mobile phone.

For Employees

You can reduce your tax bill on your mobile phone in several ways, depending on whether you are employed, self-employed, or an employer. The first situation is perhaps the most common; many individual employees are given mobile phones by their employer in order for them to carry out their job properly. In these cases, a mobile phone is counted as a fringe benefit or benefits in kind. Benefits from employers are treated in different ways depending on the benefit and the individual circumstances of the employee.

All benefits in kind are liable for Class 1A National Insurance Contributions; this is a different class to that which you are likely to be paying on your salary. However, in recognition of their increasing use, the Chancellor’s 1999 Budget provided for an income tax exemption for mobile phones. This means that, for employees, mobile phones are now essentially a non-taxable fringe benefit. More information on the taxation of employee benefits is available in an article elsewhere in this section (see Benefits In Kind).

For Self-Employed Individuals

Self-employed individuals are, perhaps, even more likely to require the use of a mobile phone for work purposes. They are also more likely to be bearing the entire cost of the service as they have no employer to pay for their line rental and calls. Thankfully, however, in many circumstances a mobile phone can be counted as an Allowable Expense for business purposes.

Essentially, reasonable expenses can be offset against self-employed individuals’ annual profits and can therefore gain relief or exemptions from tax. In order to be eligible for this form of tax relief, the expense must have been incurred solely for business purposes. If, therefore, you have a mobile phone that you use only in order to carry out your job, you can offset this against your profits. Again, more information on tax relief and expenses for self-employed individuals is available in another article on this site.

For Employers

Finally, there are a number of forms of tax relief available on mobile phones for employers. In the first instance, it is important to remember that any costs incurred by your company as a result of mobile phones that are offered to employees either as fringe benefits or because they require them in order to do their job properly can be offset against your annual profits and therefore exempted from corporation tax.

If you are offering discounted mobile phones as an employee incentive, then you may wish to look at setting up an Employee Benefit Trust, or EBT. This is a tax efficient method of offering incentives and benefits to employees, and is covered in more detail in the article Employee Interest Free Loans.