Mobile Phones and Tax: Hands-Free Kits

It is well known that when an employer provides a mobile phone to an employee, there is no benefit in kind charge as long as the phone remains the property of the employer. The same rule can apply when the employer pays for a mobile phone 'hands-free' kit fitted in a car. But not always!

A charge to tax will arise when the employer pays for the kit and it is fitted in the employee's own car, unless the employer retains ownership of the hands-free kit. This means, technically, it should be accounted for separately on the disposal of the car and the related proceeds paid to the employer, unless it is removed and refitted to another car. Similarly, if the employee buys the hands-free kit and is reimbursed by the employer, the reimbursement is treated as earnings for PAYE purposes.

Secondly, a charge will arise if the employee pays for the kit and fits it in the employer's car but retains ownership of the kit and is reimbursed for it by the employer.

In the above circumstances, the benefit in kind will be taxable, giving rise to a charge to national insurance as well as income tax and requiring a return of the benefit in kind to be made by the employer. The correct amount to return for benefit in kind purposes is the amount gross of VAT – so the employer pays tax on tax!

For VAT purposes, it is also preferable for the purchase to be made by the (VAT registered) employer as opposed to the (not VAT registered) employee, as otherwise the employer's right to recover the VAT on the purchase may be disputed.

Benefits in kind are a particularly difficult area of tax, especially as applied to travelling and subsistence expenses. They are a common source of problems with the Inland Revenue and can lead to full-blown Revenue enquiries. The best strategy is to get it right first time.

If you are having problems dealing with tax issues and would like assistance, contact me and I will be glad to help.

 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.