Smartphones and "BlackBerries" can sometimes result in a benefit in kind, warns BKL Tax.

Benefit in Kind?

Some might say, after recent experiences, "What benefit?!" But this note is about the taxation of mobile phones and similar devices.

In principle, if an employer makes an asset available for an employee's private use there is a charge to tax. Ignoring special cases like cars, vans and houses, the annual "benefit in kind" tax charge is at least 20% of the market value of the asset when it's first made available. We say "at least" because if the annual cost to the employer of renting or hiring the thing is more than 20% of its initial market value, the tax charge is on the rent or hire payment. In either case, there is also a tax charge on any additional "running costs" of the asset borne by the employer.

Tax Exemptions for Mobile Phones Don't Extend to Smart Phones or BlackBerries

Mobile phones are a special case: an employer can make available one mobile phone (including call charges) to each employee without it giving rise to a tax charge. But there are some important caveats.

First, "mobile phone" means something primarily designed for talking to people. In HMRC's view, this doesn't include "Personal Digital Assistants" (does anyone outside HMRC use the term anymore?) such as BlackBerries and other smartphones. So the provision of a smartphone will, in principle, give rise to a tax charge.

Second, the mobile phone exemption applies only where the phone is owned (or rented) by the employer. It does not apply where the employee himself contracts with the operator and is reimbursed all or part of the cost by the employer.
 

How to Avoid the Benefit in Kind Charge

All is not quite lost. There is no tax charge on anything which is provided for the sole purpose of carrying out the duties of the employment and which is not in fact used to any significant extent for any private purpose. So the provision of a smartphone, however sophisticated, gives rise to no tax charge if you use it only for business calls. And if your employer reimburses you for your mobile phone charges only to the extent of business usage, no tax charge will arise. But if, as is often the case, there is non-business use either of a smartphone provided by an employer or of a phone (whether smart or dim) the charges for which are wholly reimbursed by an employer, a PAYE settlement beckons. 

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