Tax may still wipe out petrol perk

MM writes: We pay our employees a round sum each month for expenses, which covers any business use of their personal mobile phones. Is this the best way of reimbursing their expenses without incurring a tax?

Answer

The short answer is no, writes Jon Sutcliffe, partner at Kingston Smith LLP. Employees can be reimbursed for business calls through an expenses claim, as long as this is accompanied by supporting documentation - for example, a copy of the phone bill.

If you continue to use round sums or make any reimbursement that covers line rental or private calls, these should be paid through the payroll with National Insurance and tax deducted at source.

There is an alternative. In most circumstances the provision of a mobile phone is exempt from tax charges, even if it is used for private calls. The contract and phone bill must be in the company’s name.

If two mobile phones are provided and each can be used for private calls, only one will be exempt while the other will be treated as a taxable benefit.

The exemption may cover more than one mobile phone if they are for business use and any private use is not significant. For example, this could apply if an employee has to travel internationally and has more than one mobile phone to take advantage of different tariffs in different countries, but again the private use must not be significant.

In short, if you want to avoid a tax charge you will need to continue to get employees to analyse their mobile phone bills, or the company must provide phones.