HMRC confirm smartphone taxable status

As most employers are aware, the provision of one company mobile phone to employees is a tax free benefit courtesy of Section 319 ITEPA 2003 even if the phone is also used for private calls.

In recent years, phone technology has progressed significantly with devices now catering for every need, yet HM Revenue & Customs (HMRC) still held the view that these so called “Smartphones” did not fall within the mobile phone exemption as their primary function was not to make and receive telephone calls.

Following significant representations, HMRC have now announced that where a single phone, or smartphone (i.e. PDA devices etc.) is provided to employees, no taxable benefit arises. It should be noted however that this relates to one device only so employers providing two devices will need to consider restricting the use of the second device to qualify for exemption under Section 316 ITEPA 2003 for it to remain tax free.

In our opinion this is good news. The vast majority of employers only provide their employees with a single device and as long as the device has the ability to make and receive calls, no taxable benefit will arise.

In addition, this clarification also now adds certainty to employers considering providing mobile devices through a salary sacrifice arrangement. Such arrangements provide for combined tax and NIC savings of up to 55.8% of the costs of calls and line rental. At a time where pay rises remain difficult to justify for most businesses, augmenting salary sacrifice schemes to include this new benefit will be an attractive proposition for many.