With the digital age well and truly upon us, along with the introduction of agile working during the pandemic, more and more employers need to provide their employees with the correct tools to carry out their work. One such tool is that of communication, whether that entails texting a colleague on a mobile phone, calling a client on a landline, or setting up a Teams or a Zoom meeting for your weekly team meeting.
In order for employee expenses to be allowable, they need to be incurred wholly, exclusively and necessarily to perform their duties. However, with these means of communication, there are further irregularities that need to be taken into consideration when determining whether Income Tax and National Insurance Contribution (NICs) liabilities arise on the provision of such tools.
Mobile Phones
Regardless of whether there is private use of the mobile phone, as long as an employer provides an employee with one mobile phone or SIM card and the contract is taken out in the employer’s name, it is exempt from both tax and NICs and it does not need to be reported to HMRC.
If you’re lucky enough to have more than one mobile or SIM provided by your employer, the exemption extends to only one mobile. The tax treatment of subsequent mobiles/SIMs depends on how they are used.
If the mobile or SIM is taken out in the employee’s name, the exemption no longer applies and the employer must report the benefit in kind on a P11D and pay Class 1A NICs on the cost.
For those who use their personal mobile phone for work purposes, whether it is a contract or a PAYG, and some or all the costs are reimbursed by the employer, tax and NICs may be chargeable:
- For the monthly tariff or private call charges, the amount reimbursed must be included as earnings and taxed through payroll, incurring Income Tax and Class 1 NICs.
- Where only business call charges are reimbursed, the amount is declared on the P11D for the employee, but no tax or NICs are payable.
Landlines
While no longer as common as work mobiles, landlines follow broadly the same rules.
A landline in an employer’s name, paid directly by the employer and is used solely for business calls is exempt. Robust records need to be kept to prove that there has been no private use.
Where there is an element of private use, the exemption no longer applies and the employer must report the benefit in kind on a P11D and pay Class 1A NICs on the cost. Similarly, if the landline is taken out in the employee’s name but the employer pays the landline company directly, the cost must be reported on a P11D and Class 1A NICs paid on the cost.
Where the contract is in the employee’s name and the employer reimburses the costs, the amount reimbursed is treated as earnings and taxed through payroll, incurring Income Tax and Class 1 NICs.
Where a salary sacrifice scheme is in place for either mobile phones or for landlines, it must be reported to HMRC. Please contact us for further details should this apply to you.
Broadband
Thankfully, the rules relating to broadband are slightly less complicated.
If there is no existing broadband connection, both the connection fee and the ongoing monthly cost of the broadband may be reimbursed by the employer tax-free, subject to there being limited private use.
However, where there is an existing broadband connection and the employer reimburses the employee, the payment must be included as earnings and taxed through payroll, incurring Income Tax and Class 1 NICs liabilities.
As always with tax there is never a straightforward answer!
Please get in touch to confirm how the rules apply to your specific circumstances – we may even be able to advise you how to make these payments more tax efficient for you and for your employees.
You can also email us directly: taxteam@robson-laidler.co.uk