HM Revenue & Customs (“HMRC”) have finally changed their mind; they now agree that smartphones (e.g. iPhone, Blackberry, HTC Android) are mobile phones for the purposes of the tax benefit rules. This is a welcome change of view and, some would say, a victory for common sense.
Under current tax rules, one mobile phone can be provided to employees and directors free of tax and National Insurance contributions (“NICs”) and does not have to be reported in form P11D as a taxable benefit. HMRC’s previous view was that smartphones were akin to PDAs and not used for the primary purpose of making ‘phone calls. Fortunately, they have seen the light and revised their guidance so smartphones no longer need to be reported as taxable benefits.
Any employers which did abide by HMRC’s previous guidance and did not treat smartphones as falling within the mobile phone exemption can make a claim for any overpaid Class 1A NICs for the last four tax years (i.e. from the 2007-8 tax year onwards) if certain conditions are satisfied. In many cases, it is anticipated that employers will not have reported smartphones as taxable benefits anyway (e.g. because private use was not significant) and would not need to apply for a reclaim of NICs.
Employers should note that this change of policy does not extend to other mobile communications devices the primary function of which is not to make and receive phone calls. Consequently, iPads, laptops and other tablet PCs will not fall within the mobile phone exemption and, subject to other exemptions being available, will continue to be taxable benefits if provided to employees or directors.
