Certain employees with work smartphones will be able to claim tax refunds, after HM Revenue & Customs (HMRC) revealed that it now includes the devices in its tax definition of a mobile phone.
Previously, HMRC said that smartphones were excluded from tax exemption because – like PDAs – they were not primarily designed to make or receive voice calls, as required by the exemption.
With the new guidance on smartphones, employers can now provide the devices to employees without having to pay tax or National Insurance Contributions (NIC) on them. Equally, certain employees will be able to claim a refund on any tax or NIC paid to date.
However, the new rules only apply to just one smartphone that the employer provided to their employees, without transfer of ownership. Employers must also have treated the smartphone as a taxable benefit.
James Warwick, partner in Deloitte's employment taxes group, said: "This change is good news for employees as it means there is no tax or NIC to pay on their first work mobile phone, regardless of how much the employee uses it privately.
"Previously HMRC took the view that smartphone devices were excluded from this exemption, which placed restrictions around what could be provided to employees without a benefit in kind arising. That view has now changed so that the provision of one qualifying mobile device will be exempt from income tax and may allow provision of smartphones as a tax efficient benefit."
Apple iPads and other tablets will not be tax exempt, however.
HMRC has stated that devices that are solely PDAs, tablets or laptop computers, will not be included in the new tax definition of mobile phone, nor will devices that use Voice Over Internet Protocol (VOIP) systems to make or receive phone calls.
Employers and employees have until 5 April to claim tax refunds for smartphones that were issued from 2007-8 until 2010-11.