Is my mobile phone tax deductible?

Smartphones are essential for every modern business. Whether you’re a freelancer who works from home, a business owner managing dozens of employees, or a contractor who needs to be contactable whilst out and about, you need a mobile phone by your side. For that reason, you may have asked yourself: “Is my mobile phone tax deductible?”

The answer to this question is: “It depends”! We’ve also noticed that smartphones and mobile phone bills are both things people often don’t correctly claim for. This article should help you clarify what is, and what isn’t, tax deductible.

Sole traders and partners

If you are a sole trader or a partner, what you can claim depends on how you use your mobile phone(s).

Many people have a single phone that they use for both business and personal purposes. If this applies to you, you can claim allowable expenses for the business costs of using the phone.

You don’t have to make this calculation on a call-by-call basis. Instead, you need to work out the average split between business and personal use. For example, if on average you use your mobile for business calls 70% of the time, you can claim 70% of the costs of your mobile phone bills.

An example: you pay £200 per year for your mobile phone contract or individual calls. You use the phone for business 70% of the time. You can therefore claim £140 of your mobile phone costs against tax.

If you are VAT registered, you can also claim back the relevant proportion of the VAT you pay (unless you are on a flat-rate scheme).

A second option is to have two mobile phones, with one being used exclusively for business. If you do that, you can claim back all of the costs relating to the business phone. However, people rarely do that as it’s more expensive overall!

Limited companies

Things are different for limited companies.

A company can provide each employee with one mobile phone (or SIM card) without it becoming a benefit in kind. This applies as long as the mobile phone contract is between the company and the supplier. Personal use of the phone is allowed, but must be ‘reasonable’ and not ‘excessive’. The company can claim back the expenses related to the phone, but the handset itself remains an asset of the company.

If you or another employee of the company arrange your own phone contract, the company can pay the supplier directly. However, the company must report the cost on form P11D (as a benefit in kind) and pay Class 1 National Insurance via the payroll.

Things are a bit different if the employee arranges the phone contract and the company reimburses them. If the company reimburses the monthly phone tariff, it needs to deduct and pay Class 1 National Insurance via the payroll. However, there are no additional reporting requirements.

In addition, if the employee makes personal calls that are over and above the monthly tariff, you need to deduct and pay Class 1 NI and PAYE tax through payroll. If an employee makes business calls over the monthly tariff, you don’t have to deduct or pay NI, but you must report the amount on form P11D.

Summary: is my mobile phone tax deductible?

As you can see, your mobile phone bills can be tax deductible. However, the amount you can claim depends on a variety of different factors. If you are a sole trader or partner, the easiest option is to claim the proportion of your bills that reflect business usage.

However, if you have a limited company, things can get complex. You may be wondering whether it’s more tax effective to supply employees with phones, pay employees’ own phone contracts or reimburse employees for their mobile phone use.

The best option for you will depend on your business. For help and advice for getting it right, why not speak to a THP accountant today?