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HMRC internal manual

Employment Income Manual

Employment income: telephone expenses

Section 62 ITEPA 2003

The liability to pay a telephone bill falls on the subscriber. The appropriate tax treatment depends on who is the subscriber.

Employer is the subscriber

Where an employer applies for the provision of a telephone at the home of an employee it is the employer who is the subscriber, not the employee. The employer is the person who has to pay the telephone rental and other charges.

In these circumstances the employer is not bearing a financial liability of the employee and the amount paid is not “earnings” within Section 62 ITEPA 2003 (see generally EIM00520 onwards).

But, the amount paid will be treated as earnings under the benefits code (see EIM21001 onwards) (unless, for 2015/16 and earlier, the employee is in lower paid employment). See EIM21615 for circumstances where the benefit may be exempt from tax.

Employee is the subscriber

Where the employee applies for the provision of the telephone the employee is the subscriber. If the employer pays any of the telephone expenses direct they will be meeting the pecuniary (that is, financial) liability of the employee (see EIM00580).The employee is treated as receiving earnings within Section 62 ITEPA 2003 equal to the amount of the bill paid direct by the employer.

Payments by employers that do no more than reimburse the actual cost of outgoing business calls (excluding any part of the rental) should be disregarded.

If the employer’s payment is treated as earnings within Section 62 ITEPA 2003 the employee is entitled to a deduction under Section 336 in respect of the cost of necessary business calls. EIM32940 explains when a deduction may also be due for the cost of the line rental.

If any employer or employee complains that undue significance is being attached to the form rather than the substance of the transactions you should point out that different ways of doing things can produce different tax results.

If an employer has a number of employees who will be liable to tax in respect of payments made to meet all or part of their telephone expenses, you may negotiate a reasonable fixed amount with the employer which can be treated as the measure of the charge for all the employees concerned. But such an agreement is not binding on the employees. Any of them can ask to be taxed on the strict statutory basis if he or she so wishes.