VAT and mobile phones
September 2005
When a business provides a mobile phone for an employee the tax and national insurance position is reasonably clear. As long as the contract with the mobile provider is between the business and the provider then no tax or national insurance will be payable by the employee and the business can deduct the full cost as a business expense. This is the case even if the employer allows the employee to use the phone for private calls.
Unfortunately the VAT position is slightly more complex! The following notes may be helpful:
Phones provided for Business Use only.
If the phone is provided under a written agreement that the employee will not use it for private purposes, then
All VAT added to the purchase of the phone and on all standing charges to maintain a network connection, is recoverable as input tax, subject to the usual rules.
All VAT added to call charges is likewise recoverable. Small amounts of private calls are generally ignored and will not prevent VAT incurred being recovered in full.
Phones provided for Business and Private Use.
Subject to point (2) which follows, all input tax on the purchase of the phone and on all standing charges to maintain a network connection, is recoverable as input tax.
Where the phone contract allows the business to make a certain number of free calls for a fixed monthly fee, and there is no separate standing charge, you will need to disallow a realistic proportion of the total fixed fee to allow for private use of the phone.
A proportion of the input tax on call charges must be disallowed to reflect private use. For instance you could analyse three months bills and use the private use percentage as a reasonable guide to reduce your claim for VAT added to future call charges.
