Mobile phones are becoming much more popular as a business tool; businesses of all sizes are recognising the benefits of being able to communicate even when employees are away from the workplace.
However, one of problems with mobile phones and business is that taxation requirements can vary considerably, particularly when dealing with mobile phones for (or owned by) your employees.
The following information is a guide to the main taxation requirements you are likely to face when buying or using a mobile phone as part of your business.
Mobile Phone Tax Allowances
You can claim a First Year Allowance (FYA) on Information Technology purchases, this includes web enabled mobile phones (E.g.: Wap, GPRS, or 3G enabled), as well as computers and software.
As almost all new mobile phones are web enabled, the likelihood is that any new phone you buy will apply (whether it is pre-pay or contract); although the allowance will not fully apply if the equipment is bought on hire purchase.
Small Businesses can claim 50% (40% for Medium sized businesses) first year allowance on eligible purchases made after 1st April 2004 (6th April 2004 if you are subject to income tax not corporation tax.), and you can claim 100% first year allowance on purchases made between 1st April 2000 and 31st March 2004. After the first year, the remaining balance can be claimed at 25% a year.
For Example:
If you (a small business) bought a mobile phone costing £400, and made profits of £5000 before tax; you could deduct 50% of the phone cost from the profits in the first year before working out tax.
Profits before tax = £5000
Subtract 50% of Phone cost (£400) = £200
Subtract £200 from £5000 = £4800
Therefore you would only have to put £4800 of your profits towards tax calculations, assuming you had no other deductible items.
In the second year, you could deduct 25% of the remaining cost of the phone (I.e.: The £200 that has not yet been deducted). This means that you could subtract £50 from your profits before tax in the year after purchase; and so on with the remaining balance of the phone in further years.
VAT
The vat rules for mobile phones are actually fairly simple; they apply for the cost of the phone, as well as the cost of rental/service charges and calls made on them.
You can recover vat on phones used exclusively for business purposes, but you cannot recover vat on any phone that is used solely for private purposes.
When your phone is used for both business and private use, you are required to declare a reasonable proportion for how the phone has been used for vat calculations:
E.g.: If you use your phone for business calls 70% of the time, and private calls 30% of the time, you will be eligible to recover 70% of the total vat.
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