Business Phone for Company Director

[Froggers]

Hi all

Just a quick question or two around the treatment of mobile phone bills for a limited company director.

The phone contract was taken out by the director in person however the bill is paid from the company account each month by direct debit.

Couple of questions if possible:
1. Am I right in treating this as an expense and keeping it away from the directors loan account as the company is paying this expense directly as opposed to the director paying the bill himself then being reimbursed through an expense claim.

2. Can I reclaim the full VAT on each monthly bill?

In terms of P11D reporting, it is my understanding that we must report the value of the monthly tariff for P11D and Class 1 NIC purposes.

It's a bit of a grey area in my opinion due to the separation of business and personal calls so any input would be much appreciated

Thanks in advance

 

[Mitchells Bristol]

1. Am I right in treating this as an expense and keeping it away from the directors loan account as the company is paying this expense directly as opposed to the director paying the bill himself then being reimbursed through an expense claim.

If the expense is incurred wholly and exclusively for business purpose - then yes it is a legitimate expense to claim.

2. Can I reclaim the full VAT on each monthly bill?

If the telephone is used 100% for business purposes then, yes. If there is a private use element you will need to apportion the VAT and just claim the business portion.

In terms of P11D reporting, it is my understanding that we must report the value of the monthly tariff for P11D and Class 1 NIC purposes.

Yes, if there is a personal element. Again, if the telephone is used 100% for business then this will not be necessary.

 

[Froggers]

Thanks for your reply.

So there isn't a grey area at all as I had previously thought...........it's rather straight forward once the type of use of the of the phone is established

Thanks again

 

[Mitchells Bristol]

It's a complicated area for the handling of PAYE reporting obligations, but the rules are fairly clear.

It's grey in the sense that the apportionment between business and private use is open for manipulation

 

[andygambles]

If the phone contract is in the name of the director personally and the company pays then it still needs to be reported on the P11D.

http://www.hmrc.gov.uk/paye/exb/a-z/t/telephones-mobile.htm#3

Even if the phone is used "just for business" then the re-imbursement should only be for the cost of business calls and not the line rental. If the line rental includes a calls package these can still not be reclaimed.

If you take out the phone contract in the name of the company then you can claim back 100% VAT and charge the full amount as an expense to the company.

This is why business contracts tend to be more expensive as the phone companies know you can only claim them if they have a company name on the phone bill (unless you are sole trader). For me it was cheaper to get a personal contract and just pay it personally. Even with VAT and no tax relief.

 

[Froggers]

Extract from HMRC guidance:

For company directors or employees earning at a rate of £8,500 or more per year, unless the exception outlined below applies:

report on form P11D - section B

add the value of the benefit to the employee’s other earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

I presume that 'earning at a rate of £8,500 or more per year' in relation to company directors means total remuneration as opposed to wages as there are many directors of small limited companies who take salary at or around the personal allowance topped up with an annual dividend payment?

 

[Wild Goose]

Extract from HMRC guidance:

For company directors or employees earning at a rate of £8,500 or more per year, unless the exception outlined below applies:report on form P11D - section Badd the value of the benefit to the employee's other earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

I presume that 'earning at a rate of £8,500 or more per year' in relation to company directors means total remuneration as opposed to wages as there are many directors of small limited companies who take salary at or around the personal allowance topped up with an annual dividend payment?

The trouble with the baby language that the Revenue often use in their guidances is that it is badly worded and ambiguous.

When the Revenue state (as in your extract above): "For company directors or employees earning at a rate of £8,500 or more per year" what they mean is either (i) directors or (ii) employees earning less than £8,500pa. To clarify this, they don't mean directors who earn less than £8,500 pa. In other words, if you are a director then it doesn't *usually matter whether you earn more or less than £8,500 pa - the benefit will still go on your p11d.

The same terminology applies to the exceptions that follow on in your HMRC extract ie "unless the exception outlined below applies": when you read HMRC's exceptions (on AndyGambles linked page) you should read the exception at the foot of that page "For employees earning less than £8,500pa" as meaning employees, but not directors.

*Ok, for the purists, I flagged "usually" above because there are rare exceptions for full time working directors who control less than 5% of the company's ordinary share capital and receive less than £8,500pa. So far as I am aware, they are the one flavour of director who may be exempt from p11d reporting for benefits in kind. But in the OP's case, I imagine these will not apply as I presume he controls more than 5% of the company's ordinary shares.

 

[Froggers]

Wild Goose thank you for that clarification.

I am in complete agreement with your comments on the language used by the revenue in their guidance. It often requires reading an article several times for the penny to drop as it were with regards their meaning.

Hence I find it much more helpful posting the odd query on this forum and 9 times out of 10 getting a concise answer from one or more of the many helpful users.

Thanks again

 

[Wild Goose]

Wild Goose thank you for that clarification.

You're welcome Froggers. You may if you feel so inclined express your appreciation in the time honoured fashion, by pushing my "thanks" button

btw, if your director is going to end up paying tax and NI (or, for that matter, if the company itself is going to get stung for the other flavour of NI), you might consider charging (debiting) the invoices in their entirety to the Director's Loan Account (always assuming there is sufficient scope to do so, in the form of a DLA credit balance), and then by recharging (crediting) any business calls/elements to that DLA (debit P&L). That way the director and company can avoid tax/NI on the "benefit".

The input VAT relating to the business element can be a tricky one: I'm inclined to rely on the Revenue's internal guidelines for its VAT staff:

http://www.hmrc.gov.uk/manuals/vitmanual/VIT13400.htm

QUOTE:
VIT13400 - VAT Input Tax basics: when input tax can be claimed by the business on supplies to employees

You must take care in applying the supply rule when the third party is an employee. Here are some examples of supplies made to the employer, provided the employer meets the full cost, even when it may look as if the employee has received the supply:

• road fuel and other motoring expenses;
• subsistence costs such as meals and accommodation necessarily paid for whilst away from the normal workplace;
• removal expenses arising from company relocations or transfer of staff;
• sundry items such as small tools or materials purchased on site.

This list is not exhaustive.
You should decide whether the supply is legitimately paid for by the employer for the purpose of the business. If it clearly is then input tax should be recovered. This is in keeping with the intention of the legislation.

UNQUOTE

It's fairly well laid down elsewhere in the VAT manuals that "paid for by the employer" includes circumstances where the company reimburses the employee or director whose name the VAT invoice is in (whether via an expenses claim or by crediting to DLA as I suggested above). You just have to get over the mental hurdle that "sundry items such as tools or materials" and "This list is not exhaustive" imply that other incidentals (phone charges, stationery, printer cartridges, to name but a few) purchased in the employee's name and re-imbursed by the company can have their VAT reclaimed.