Tax deductions for phone calls

Phone expenses

When it comes to tax relief for phone costs incurred by employees (including directors), HMRC’s stance has long been aggressive and miserly. And despite the revolution in IT and personal communications, HMRC’s guidance is essentially unchanged.

Phone rules

The general expenses rule determines if tax relief applies to phone expenses. This says that a deduction is allowed where an “employee is obliged to incur and pay it as holder of the employment, and the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment”. HMRC applies, and occasionally misapplies, this rule rigorously.

The claim

In the example above the mobile phone costs are typical. Let’s call the employee Bill. He has a combined contract for a phone and mobile voice, text and data services. The significant majority of use is private with occasional business calls, texts, emails and other online time, which was always within the contract allowance until the recent business trip to the USA. Here Bill incurred significant roaming charges and around 90% of his usage was business related.

Tax deductions

The effect of the general expenses rules permits tax relief for phone-related costs where they are:

• additional charges, meaning those paid on top of the contract payment whether for voice or data and incurred in the course of employment and which relate solely to business;
• and charges for a contract that’s solely for business use.

Incidental private use is ignored. For example, if the call is for work but while on the phone you discuss private matters.

Trap. Even if phone use is nearly all business, no tax deduction is allowed for the regular contract payments. A deduction is only allowed for this if the use was exclusively business (apart from incidental private use). In practice HMRC might allow a claim if you can demonstrate that the private use was negligible.

Tip. Where the contract for a phone itself is separate from the services, or the phone is bought outright, there can be a right to a tax deduction for its cost under the capital allowances rules, even if there is private use.

Practical issues

Because Bill used his phone mainly but not exclusively for work while in the USA, he isn’t entitled to a tax deduction for his regular contract payment. This is also the position for bolt-on charges for overseas use even when incurred only because he was travelling outside the UK. However, he can claim a tax deduction for any that specifically relate to a business call.

Tip. If Bill’s company reimbursed him for business-related phone costs, it can be made tax and NI free if the cost would have been tax deductible had reimbursement not been made.