Technical Briefings
08 March 2012
Employment Income Treatment of Smartphones
HM Revenue & Customs (HMRC) announced on 20 February 2012 a change in HMRC's application of ITEPA 2003, s 319(4) to smartphones, with them now being accepted to qualify as mobile phones rather than PDAs.
The exemption from Income Tax in respect of an employer providing one mobile phone per employee, without any transfer of ownership occurring, will apply to smartphones from 6 April 2011.
Most employers have been aware of HMRC’s view that smartphones are not “mobile phones”, employers are likely to have provided such devices in circumstances covered by the separate exemption in section 316 ITEPA 2003 where the sole purpose for providing the smartphone is to enable the employee to perform the duties of the job, provided that private use is not significant.
Change of view
HMRC now considers that its application of the legislation to smartphones is incorrect. HMRC now accepts that smartphones satisfy the conditions to qualify as “mobile phones”. Developments in PDAs following the penetration of smartphones into consumer markets from late 2007 onwards mean that many modern consumer PDAs are now also likely to be smartphones. But this will not apply to devices that are solely PDAs.
It should be noted that this view applies to smartphones as configured and understood at the start of 2012. This is an area of rapidly changing technology and HMRC cannot be certain about the application of the definition of “mobile phone” to new forms of smartphone.
It should also be noted that there are many types of devices that have telephone functionality which do not qualify as mobile phones. The definition does not cover apparatus that is designed or adapted for a primary purpose other than transmitting or receiving spoken messages, even if that apparatus is also capable of being used in this way.
Examples of apparatus that does not fall within the definition of a mobile phone include satellite navigation devices, devices that are solely PDAs and tablet and laptop computers.
Tax year 2012/12
Where you provide a smartphone in 2011/12, treat it in the same way as any other mobile phone. Only include a benefit on form P11D for any mobile phones/smartphones that are either over and above the first one provided to the employee or that are provided to a member of the employee's family or household rather than to the employee personally.
Tax years 2010/11 to 2007/08
If you provided a smartphone for 2010/11 and years back to 2007–08 and the conditions listed below are satisfied, you may wish to seek repayment of the Class 1A National Insurance contributions (NICs) liability in relation to the benefit of the smartphone. In addition where the provision of a smartphone had been included in a PAYE Settlement Agreement for any of the tax years stated and the conditions listed below are satisfied you may also wish to seek repayment of the tax liability in relation to the benefit of the smartphone.
Conditions provided just one smartphone to their employees without transfer of ownership and treated that smartphone as a device that falls outside the meaning of “mobile phone” and included entries in form P11D and form P11D(b) for the benefit of the availability and use of that smartphone and for the corresponding Class 1A NIC liability (or included the benefit in a PAYE Settlement Agreement)
This guidance is an extract from HMRC Brief 02/2012. For further information please see http://www.hmrc.gov.uk/briefs/income-tax/brief0212.htm
