Tax rules allow your company to provide you with one mobile phone tax and NI free. But if you have two phones, is there a way to stretch the exemption to cover both of them?

Exempt phones

There’s been an income tax and NI exemption for mobile phones provided by employers to directors or employees for many years. In 2006 HMRC reined in the exemption to counter schemes which were being used to take unfair advantage. Since then only one mobile phone (including contract payments), can be provided as a tax and NI-free perk by an employer.

Exemption basics

The exemption applies to any device provided to an employee (without transferring ownership) which is primarily “designed or adapted” for communication purposes over a phone network, but not a landline. This rules out iPads and other tablets even if you can use them to make calls, because primarily they aren’t designed for communication. The exemption only applies to one mobile telephone number and the contract for the phone service must be directly between the employer and the phone company.

Beware of HMRC’s spin

HMRC hints at a further restriction not included in the legislation. Its guidance gives the impression that the exemption doesn’t apply if anyone other than the specified employee uses it. The law simply says the exemption applies where a phone is provided to an employee. What they do with it after that is irrelevant. For example, if you hand your phone to a family member to use the exemption still applies. Only if the employer provides the phone to another person, e.g. an employee’s spouse, does the arrangement fall outside of the exemption.

Tip. Make sure documentation relating to the provision of a phone specifies that it is provided for an employee or director.

Choose your own exemption

If more than one phone is provided to a director or employee, a choice needs to be made about which one the exemption applies to.

Example. Todd is a director of Acom Ltd. It provides him with two phones with different numbers. In April, May and June the respective bills for the first phone (A) were £100, £50 and £180. For the same months the bills for the second phone (B) were £22, £220 and £25. Todd wants to apply the exemption to phone A for April and June and phone B for May.

Good reasoning

After reading the legislation and HMRC’s guidance we can’t find anything wrong with Todd’s reasoning. We believe the exemption can apply as indicated in our example. It might not be within the spirit of the exemption, but it is within the letter of the law.

Tip. If you want to maximise the exemption by adopting the approach illustrated in our example, but avoid trouble with HMRC, we recommend you keep clear records showing the periods for which you apply the exemption for each phone/number. That way you can demonstrate that you’ve only applied it to one phone and one number at any one time.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.