Tax relief for a SIM-only deal

Phone reliefs and exemption

The mobile phone market has changed a lot since its early days. It's now possible get a “bundle” of expensive equipment and services tailored to specific needs. By comparison, the tax treatment of mobile phone costs has changed very little in the last two decades.

Exemption

HMRC has a longstanding exemption which applies to employer-provided mobiles. However, we’re not considering the details of the exemption but situations where individuals use personally paid-for mobile for work as an employee or self-employed trader.

Purchase and service contracts

Because of the way the legislation is worded HMRC takes a different approach to the all-inclusive (device plus services) contracts compared with separate purchases of equipment and services even if they are made at the same time and from the same provider. HMRC, illogically in our view, makes a distinction between business use by employees and self-employed workers.

Employees - separate purchases

 If an employee's job means they have to use a mobile phone they may be entitled to some tax relief for business use. If they buy the device separately from the services, HMRC will allow a tax deduction for part of the cost of the phone (in proportion to the amount of business use) but none for the cost of phone services where the employee uses it for private purposes except where they incur an identifiable cost for a business call or data charge. This will usually only occur where usage exceeds the free-call or data limits under the contract.

Some service providers have contracts which while seemingly all-inclusive, divide the monthly charges between the cost of the device and the services. This allows some tax relief compared to a contract where the monthly payment isn’t divided.

Example. Rajeev is employed as a sales rep for Acom Ltd. A mobile phone is a must-have for his work. He’s changing his phone for the new iPhone 13 Pro which he’ll use 75% for work and 25% for personal calls and data. He can choose between an all-inclusive 18-month contract for £60.50 per month or for the same price a three-year one split between the device, £25, plus £35 for services. If he chooses the shorter contract he’ll get no tax relief but if he signs the longer separate device/service contract he can claim tax relief (as a capital allowance) on £675 of the cost (£25 x 36 x 75%) of the device.

Self-employed

Although the legislation for tax relief for self-employed individuals (this includes those in business partnerships) is worded very similarly to that for employees, in practice HMRC treats them differently. That is, it usually (but not always) allows tax relief for the cost of mobile phone all-inclusive contracts in proportion to the business use. Therefore, if Rajeev from our example was self-employed, and his business use of the iPhone was 75%, HMRC would allow him a corresponding amount of tax relief regardless of which type of contract he signed up to.