Most employers provide their employees with mobile phones to enable them to contact them for business reasons. In some cases the employers allow staff to make private calls, while others do not. How much VAT can actually be reclaimed?
If your business buys its employees mobile phones for business use, you can reclaim all of the VAT even if you allow private use. You can also reclaim all the VAT you incur on any standing charges for keeping it connected to the network (line rental) providing the charges do not contain any element for calls. If your business does not allow its employees to make private calls you can also reclaim all of the VAT incurred on the call charges as well.
Insignificant for VAT Purposes
By concession, HM Revenue & Customs (HMRC) will accept that there is no private use where your business has imposed clear rules prohibiting private use and enforces them. However, HMRC accepts that in practice businesses with such a policy often tolerate a small amount of private use. HMRC is prepared to treat such minimal use as being insignificant for VAT purposes and it will not prevent your business from claiming all VAT it incurs on calls (VAT Notice 700 paragraph 12A.2.1).
Tip. Always argue that any private use is minimal and have a company policy that says “no private calls except in exceptional circumstances”.
Accounting for VAT on Private Calls
If your business charges its employees for any private calls they make, then you can claim back all of the VAT incurred on the calls, but you must account for output VAT on the amounts you charge your employees.
If your business allows its employees to make private calls without charging them, then HMRC says that you should apportion the VAT incurred on the call charges using any ’fair and reasonable‘ method and only claim the VAT back on the business element.
This could be done by monitoring use for a representative period and then applying that percentage going forward. Where calls are itemised on the bill, get your staff to highlight the private calls they have made and use that as a basis for the apportionment.
Where the phone package allows your business to make a certain quantity of calls for a fixed monthly charge and there is no separate standing charge, then you must apportion the VAT on the total charge for the package.
Similarly, where the contract is for the purchase of the phone and the advance purchase of a set amount of call time for a single charge, the apportionment will also apply to the whole charge.
Practical Tip
From a VAT perspective you are best to buy the phone separately from the call package in order to maximize VAT recovery. Any restriction on the VAT you can reclaim is confined to the call charges, not the purchase of the actual phone. The same rules apply if you buy top-up vouchers rather than buying a calls package.
By Andrew Needham
