The Pitfalls of Choosing the Wrong Mobile Phone Contract

13th November 2013

This is something that I don’t come across very often but I think that is because clients don’t ask me about it or show me their mobile phone contracts, if I saw more contracts I’m convinced that there would be a lot of people on the wrong contract.

The problem with mobile phone contracts is tha the nice salesman in the shop wants to sell you a personal contract ‘it’s cheaper’ they say ‘we don’t do business contracts in store you would have to call customer service’. Perhaps the most worrying one I have come across very recently is a client that has been told ‘it’s fine, just pay with your business account and then its a business expense’. This advice is not only wrong but could cost you money in backdated tax, penalties and interest if you have been treating the contract as a business expense incorrectly.

Let me explain how it works, if you are a sole trader, then you are the business so having the phone in your name is fine, you can just apportion the cost of the contract between personal and business based on the level of calls made. The big problem comes if you are an employee or a director. As an employee or a director with a personal mobile phone contract the only business element of the cost is the cost of the calls made for business purposes. Okay fine I hear you say, but this needs to be worked out on an itemised call by call basis, if you have a contract that has inclusive minutes there is no additional cost so therefore no business expense.

The ONLY way to claim your mobile phone contract costs as a business expense (and reclaim the VAT) when you are a director is to have the contract in the name of the company, then the whole bill is allowable because there is no additional cost of the personal calls. If your company pays the supplier directly for a personal contract you would more than likely need to report this through the payroll system and pay Class 1 National Insurance on this and also report it on the annual P11d which could then incur a personal tax charge. HMRC’s guidance on this is in theirexpenses and benefit guide.

Be wary of this when getting a new contract as the sales people in the mobile phone shops may not know that this is the case. When they are selling you that lovely iPhone 5 on its much cheaper personal contract just consider whether it is really cheaper.

If you have any queries about running your business and what expenses you can claim why not call us on 01273 737307 or email us and we can grab a coffee and see how we can help.