HMRC ‘appy’ with smart phones

HMRC yesterday (20 February) declared itself ‘appy’ that smartphones are the same as mobile phones, potentially paving the way for thousands of employees to reclaim overpaid tax.

HMRC has always insisted that smartphones, such as Apple’s iPhone, were not the same as mobile phones, giving rise to a taxable benefit to any employee who is provided with such a device and allowed to use it personally.

The change in HMRC’s stance follows a dramatic increase in the number of smartphones in the UK.  The regulator OFCOM estimates that 47 per cent of all teenagers and a quarter of all adults in the UK own a smartphone.

Chris Lee, a Partner in the Business Tax team at accountants James Cowper Kreston, said: “HMRC has finally woken-up and found itself in the 21st Century.  Smartphones are in many cases an indispensable business tool and it is right that they should not be treated as a taxable benefit.”

The new interpretation of the rules potentially allows employees to reclaim any tax they might have paid back to the tax year 2007/08.  And this, as Chris explains, could amount to several hundreds of pounds: “Unlike ordinary mobile phones, which can be provided tax free to employees, smartphones have until now been treated as a taxable benefit. Tax can be charged on 20 per cent of the value of the device plus private usage costs.  Smartphones can cost upwards of £400, so employees who have had a smartphone for several years could potentially claim back £200 or £300”.

To qualify for a tax refund employees must be able to show that:

• they were provided with a single smartphone and that it was owned by their employer;
• their employer treated the smartphone for tax purposes as not being a mobile phone; and
• their employer declared the smartphone to HMRC as being a taxable benefit, either on form P11D or through a PAYE Settlement.

Chris adds: “Employees may find it complicated to reclaim any tax paid as this was a notoriously messy benefit. Employees often use phones for personal use as well as for work and it is quite possible that employers simply treated smartphones the same as ordinary mobiles for tax purposes.  Employees who believe they are due a refund should first speak to their employer.  And employers themselves may be in line for a National Insurance refund.”

The new rules do not apply to tablet computers or PDAs even though it is possible to make and receive calls via them.  Chris explains: Devices that uses Voice Over Internet Protocol (VOIP) systems to make and receive phone calls are unlikely to meet the new definition of a mobile phone, so their provision may result in a taxable benefit for employees.”

Chris Lee, Partner, James Cowper Kreston LLP, Tel +44 (0)118 9590261 or email clee@jamescowper.co.uk