Most entrepreneurs who run their businesses as limited companies or as self-employed sole traders are always looking for ways to claim tax relief on their phone and business calls. It is possible to achieve tax relief on business telephone calls as long as you have a contract between your business and the telephone service provider.
Tax Relief for Businesses Run as Limited Companies
- As a limited company, you will be able to claim the cost of your phone and the landline if the connection is registered in the business name and is used solely for business purposes only.
- In case you have a landline phone contract – for business purposes only – with the service provider, you can enjoy tax benefits. It is included in the company’s allowable expenses, and you can’t be personally taxed for this. When you have a separate phone connection listed as “only for business,” it shows that the line is entirely for business purposes only.
- You can claim all business calls under the allowable expense in mobile phones with a contract between the service provider and the company.
- In case your company pays your personal phone bill, you are required to pay a ‘BIK’ or ‘Benefit In Kind’ charge on the entire bill amount. Additionally, your company shall also pay 13.8% National Insurance Contributions on the total bill amount after deducting the cost of business calls.
- You can also claim tax relief for business calls made on your mobile or landline, provided you are able to prove those calls to be business calls. If you are VAT registered, you can also reclaim the VAT part of the calls. However, you’ll still incur the connection’s line rental element, which can’t be reclaimed.
If your limited company provides employees with mobile phones, you must pay National Insurance, certain taxes, and under reporting obligations.
As a limited company, you’ll have to:
- Cover the cost of mobile phones you give your employees,
- And reimburse the cost of employees’ personal phones.
Continuing in the same vein, you won’t have to pay National Insurance or tax or even report to the HMRC (HM Revenue and Customs) if the following two conditions apply:
- You have provided an employee with one SIM card or one mobile phone only
- The contract for the phone is between the service provider and your limited company.
In case you have taken a mobile phone contract under your limited company’s name, you are eligible to get Corporation Tax Relief on the total phone cost. The Corporation Tax for the current tax year 2021/22 is 19%. If the mobile phone contract’s total cost is about £1500, it would be considered an allowable expense. And £285 will be deducted from your Corporation Tax bill.
A critical drawback of having a contract drawn up in the name of the limited company is that you might be required to use the service provider’s business tariff. It can turn out to be a tad bit expensive. However, any such increase in the tariff might still be covered under tax savings. The same standard applies even in the case of a landline phone connection. You’ll have to set up a contract with the service provider in the name of your business if you want to enjoy tax benefits for your business calls made on the landline connection.
Tax Relief for Businesses Run as Sole Traders
The principle behind tax relief for a self-employed sole trader is slightly different from businesses run as limited companies. As a sole trader, you and your business are not considered separate legal entities. Although HM Revenue and Customs allow for the phone’s business portion to be used for claiming tax relief, it becomes challenging to separate business usage from personal use. Here is a good read on Costs You Can Claim Against Your Self-Employed Business
In case you are using the same mobile phone or home phone for both business and personal calls, you’ll not be able to claim for line rental. Since you are using the line for dual purposes, the expenses can’t be entirely marked for business purposes only.
However, if you are able to identify the business calls made on that line, you can still claim tax relief for those calls. On the other hand, you can also consider setting up a separate mobile contract or a phone line in the business name exclusively for business use. The same method is considered while determining the expenses for Broadband.
Claiming for business use on a personal phone?
It is a question that business owners often ask – whether it is possible to claim for business use on a personal phone contract. Usually, service providers give ‘bundles’ or packages of data and calls. It becomes highly cumbersome to show HMRC the split-up between personal and business calls.
We have covered most scenarios where you can claim tax relief for business calls and the phone itself. This information will help traders and limited companies when they are trying to determine what they are eligible to claim in allowable business expenses. Obviously, no one is interested in paying more tax than they absolutely have to. And claiming business expenses is one way of reducing the overall tax you’ve got to pay.