Business owners need to keep in touch with clients and suppliers so a phone is necessary – but what about mobile phone expenses?
While an office landline is straightforward and 100% tax deductible, mobile phones are a bit more complicated.
The rules depend on how on your business set up: are you a limited company or a sole trader? It matters because the rules are slightly different.
Here, we look at what you need to know about your own mobile as well as any employees you have.
Mobile phone expenses for sole traders and partners
Most sole traders or partners in a business have a choice when claiming mobile phone expenses. You can either buy a phone that is used only for business or use your personal phone and claim a proportion of the phone costs.
Buying a phone simply for your business is the easiest way of claiming expenses because it’s less hassle. Giving out the number only to business contacts means the cost of tariffs and calls are 100% tax deductible. If you are VAT registered, you can also claim the VAT.
Of course, carrying two phones could be cumbersome and some people may mistake you for plying your trade in illegal activities! So, what if you use one phone for both business and personal reasons?
HMRC allows you to claim a proportion of your bill as business expenses. There isn’t a set way of working this out, but it should be reasonable. If you only use your phone for business 10% of the time but claim 95%, then you will struggle to convince HMRC if they ever dispute your calculations.
One method of calculating your mobile usage is to take a sample of mobile phone bills and work out what percentage are business calls. It may not be an exact science, but it means you can demonstrate that you are being fair. Keeping those records to explain how you arrived at your calculation will help should HMRC query your expenses.
Mobile phone expenses for limited companies
When calculating expenses for limited companies, it all depends on the type of contract. If the phone or SIM card is registered in the company name, all costs can be claimed. But beware that any ‘personal use’ must be, according to HMRC, ‘reasonable and not excessive’.
The phone itself is considered a company asset and VAT can be claimed on al costs.
If your phone is not registered to the company, then there are two ways you can treat the expense:
- Should your limited company pay for the phone and bills, it is considered a ‘benefit in kind’. As a result, costs have to be reported on a P11D form. Find out about that and benefits in kind here.
- If a director or employee pays the bill, the company reimburses you. Deductions have to be made on Pay As You Earn and Class 1 National Insurance Contributions on the value of the monthly contract plus any personal calls that may push costs above the monthly tariff.
VAT can be claimed only on the business costs in both cases.
It can get a bit complicated for limited companies with several employees using mobiles, as you can see. So, using an accountant is essential to work out the expenses for you.
For more details about expenses and benefits in kind, contact our team today.