Almost every business uses mobile phones, and almost every phone is used privately too. The tax rules deal with that overlap differently depending on whether you are self-employed, a company director or an employer providing phones to staff.
Sole traders and partners
You can claim the business proportion of your phone costs: line rental, call and data charges, and the handset. If you use one phone for both, estimate business use reasonably, for example from a few months of itemised bills, and claim that percentage. Keep a short note of how you worked it out.
| Cost | Claim |
|---|---|
| Separate business-only phone and contract | the full cost |
| Personal phone used partly for business | the business percentage of the contract |
| Handset bought outright | as equipment (capital allowances or simplified expenses), business percentage |
| Pay-as-you-go top-ups | business calls and data only |
Limited companies: the one-phone exemption
A company can provide one mobile phone per employee (directors included) tax-free, even with unlimited private use, provided the contract is in the company’s name and the company pays the provider directly. The cost is deductible for the company and there is no benefit in kind or Class 1A NIC.
The exemption does not apply when:
- the contract is in the employee’s name and the company pays or reimburses the bill: that is taxable earnings through payroll;
- a second phone is provided to the same employee: the second one is a benefit in kind;
- the “phone” is really a tablet or laptop with a SIM: different rules apply.
Reimbursing an employee’s own contract is tax-free only for itemised business calls, not a share of the line rental.
Handsets on contract
Many contracts bundle a handset into the monthly price. For small numbers of phones, expensing the monthly charge is acceptable. Where the contract shows a separate device charge, the handset can be treated as equipment and the airtime as a monthly cost.
VAT
A VAT-registered business can reclaim VAT on phone costs for business use. On a company contract with incidental private use, the VAT is normally reclaimed in full; where private use is significant, such as a sole trader’s personal phone, apportion it.
Recording phone costs
Post contract charges to a telephone account and handsets to equipment, following your capitalisation policy; see telephone and internet in the chart of accounts for the ledger side. HMRC sets out the employer rules in expenses and benefits: mobile phones.
Quick checks
- Is the contract in the company’s name? If not, move it before claiming the exemption.
- Does any employee have two company phones?
- For sole traders, is the business percentage documented and reasonable?
For other everyday costs, see allowable business expenses.