EIM21779 - Particular benefits: mobile telephones: exemption for 2006/07 onwards: details
Section 319 ITEPA 2003 (as amended by Finance Act 2006)
In most circumstances the provision of one mobile ‘phone to a director or employee for private use is exempt from charge. The exemption covers the phone itself, any line rental and the cost of private calls paid for by the employer on that phone.
The exemption for mobile phones in Section 319 was substantially amended by Finance Act 2006. For a brief summary of the changes see EIM21778.
Changes to the definition of a mobile phone
For 2006/07 onwards the definition of a mobile phone is extended to include apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service. This covers a connection (e.g. a SIM card) provided independently of a mobile phone. For example a SIM card provided by an employer to be used in a mobile phone that belongs to an employee.
Where apparatus is clearly designed or adapted for the primary purpose of transmitting and receiving spoken messages and is used in connection with a public communications service, the fact that it can also be used for other functions will not prevent it from falling within the meaning of “mobile phone.”
This means that smartphones will fall within the meaning of “mobile phone.” It is worth noting that certain devices that were primarily designed and adapted as Personal Digital Assistants (“PDAs”) in the past have evolved over time so that many modern consumer PDAs are likely to be smartphones. It is also worth noting that this is an area of rapidly changing technology and it is not possible to be certain about the application of the definition of “mobile phone” to future or new forms of smartphone.
It is important to note that there are many types of devices that have telephone functionality which do not qualify as mobile telephones. The definition does not cover apparatus that is designed or adapted for a primary purpose other than transmitting or receiving spoken messages, even if that apparatus is also capable of being used in this way.
Examples of apparatus that does not fall within the definition of a mobile phone include satellite navigation devices, devices that are solely PDAs and tablet and laptop computers.
In general, devices that use Voice Over Internet Protocol (“VOIP”) systems to make and receive telephone calls will not satisfy the primary purpose test.
One mobile phone for private use - exclusion of family members
Before 6 April 2006 the wording of the exemption for mobile phones did not stipulate a limit on the number of mobile phones that could be provided to an employee and/or his family and household members (see EIM20504) for private use. This led to the development of schemes that provided multiple mobile phones to an employee for private use. From 6 April 2006 the exemption is limited to one mobile phone provided to each employee for private use and specifically excludes the employee’s family and household. But there are transitional rules for mobile phones provided under multiple mobile phone arrangements, which were in place before 6 April 2006 (see below).
For these purposes, one mobile phone may consist of two connections (e.g. two SIM cards) to the same number, one in a handset and another in a hands-free phone in a car (see EIM21781). However two connections to two different numbers represents two mobile phones.
Business use exemption
The restriction of the exemption in Section 319 to one mobile phone for private use, does not alter the treatment of mobile phones provided solely for business use, which continue to be exempt under Section 316 ITEPA 2003, as long as any private use is not significant (see EIM21613).
If only one mobile phone is provided for both business and private use it will be exempt under section 319. If two mobile phones are provided for business and private use, one will be exempt and the other will represent a benefit. It is up to the employee and employer to decide which one will be exempt and which one will be chargeable as a benefit.
See EIM21630 regarding the calculation of the amount of the benefit when an asset (e.g. a mobile phone) is made available to an employee for private use.
The exemption in Section 316 may cover more than one mobile phone if provided solely for business use and where any private use is not significant. For example, an employee who travels widely in the performance of the duties of their employment may have two or more mobile phones provided solely for business use, perhaps one each for use in two different countries to take advantage of different tariffs. Both are exempt under Section 316 if private use is not significant.
Provision of a mobile phone treated as general earnings, or where a mobile phone provided by voucher or credit token
Before 6 April 2006 the exemption for mobile phones applied only to Chapter 10 of Part 3 of ITEPA (general benefits), leaving the possibility of a tax charge arising under Section 62 ITEPA (general earnings) or Chapter 4 of Part 3 of ITEPA (vouchers and credit tokens), if these rules were relevant to the way in which the mobile phone was provided.
Finance Act 2006 changed this so that one mobile phone provided for private use is exempt from a tax charge on Employment Income, if a charge would otherwise arise on general earnings under Section 62 or under the vouchers or credit cards rules in Chapter 4.
As with the abolition of the computer exemption in Finance Act 2006 (see EIM21699), there are transitional rules for arrangements under which more than one mobile phone was provided to an employee for private use before 6 April 2006.
For mobile phones provided under these arrangements the exemption in force before 6 April 2006 continues to apply, until the mobile phones concerned are replaced by a new mobile phone (except where replacement is under a warranty that formed part of the original agreement) or upgraded at the employee’s request.
An employment income charge will still arise if the employer reimburses the employee for calls made on their own mobile telephone (see EIM00580), as this represents the provision of an expenses payment and not a benefit, but the employee may be entitled to a deduction for business calls.