NOT financial advice - seek advice from a professional for your specific situation

    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Mobile Phone Exemption

    Mobile Phone Exemption (ITEPA 2003 s.319, extended to smartphones from 2012) allows ONE handset (or SIM card) per employee, with PRIVATE USE PERMITTED, entirely **TAX-FREE**. Mechanics: (1) Contract must be in the **EMPLOYER'S NAME**, not the employee's. (2) **OWNERSHIP** must remain with the employer (no gift / transfer). (3) **Smartphones** qualify (since 2012 extension); tablets, iPads, VoIP-only devices do NOT. (4) Applies to **DIRECTORS as employees** of their Ltd Co. **Scope**: exemption covers the handset, line rental, and cost of PRIVATE CALLS on that line. Does NOT cover the employer reimbursing PERSONAL mobile bills (taxable as settlement of pecuniary liability). **OpRA trap**: if provided via salary sacrifice, exemption FAILS, benefit taxed on higher of BIK or salary sacrificed. **Second phone**: only ONE phone benefits from s.319 private-use exemption. A second phone provided under s.316 (business use only, no significant private use) avoids BIK but requires genuine restricted use. **Extraction value**: flagship £1,200 iPhone + monthly £40 contract = £1,680/year of cost provided NI-free + tax-free vs ~£3,000+ gross dividend extraction needed to fund same after personal tax.

    Last reviewed:

    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    What this relief is, in plain English

    Mobile Phone Exemption is one of the simplest + most-used Ltd Co director extraction routes. Mechanics are straightforward: company buys the phone + contract in company name; provides to director; director uses for both business + personal use; entirely tax + NI exempt. Annual value: ~£1,500-£2,500 depending on phone model + contract. Key constraints: contract MUST be in employer's name (not employee's). Smartphones qualify; tablets + iPads don't. One phone per employee under s.319 (second phone needs s.316 restricted business use). Salary sacrifice fails the exemption (OpRA). Reimbursing personal contracts fails the exemption. Most owner-managed Ltd Cos provide phones to directors + key staff as a standard benefit. Easy to implement; low admin; significant value over years (£10,000+ over a 5-year period for typical director phone + contract refresh cycle). Combined with EV salary sacrifice + pension contributions + AMAP mileage + Trivial Benefits, mobile phone provision is one of the standard 5-6 stacked extraction routes for owner-directors.

    How it works

    One handset per employee tax-free

    Per ITEPA 2003 s.319: one handset + SIM card per employee, with private use permitted, entirely exempt from BIK + NI + income tax. Includes handset cost, monthly line rental, cost of private calls + data. Covers smartphones (since 2012). Contract must be in employer's name; ownership remains with employer.

    Contract + ownership in employer's name

    STRICT requirement: contract MUST be in the EMPLOYER's name, not employee's. Handset purchased by company. Ownership remains with company throughout. If ownership transfers to employee (e.g. employee buys it at year-end below FMV), additional BIK arises on the difference between FMV + amount paid.

    Smartphone qualifies; tablets / VoIP-only do not

    2012 extension brought smartphones within s.319. Tablets (iPads, etc.) do NOT qualify under s.319, separate BIK rules apply. VoIP-only devices (Skype-only handsets, internet-only phones) don't qualify. Genuine smartphone with cellular phone + data functionality is the qualifying device.

    Second phone, restricted business use under s.316

    Only ONE phone per employee benefits from s.319 private-use exemption. A SECOND phone can be provided under s.316 (business use only, no significant private use), exempt from BIK only if genuinely restricted to business. Documentation supporting business-only use important. Without restriction: BIK arises on second phone.

    Who qualifies

    Interactions with other reliefs

    Trivial Benefits (£50/£300 director cap)

    Phone accessories not covered by s.319 (e.g. phone case, charger replacement, headphones) can potentially be provided as Trivial Benefits within £50/occasion + £300 director annual cap.

    EV Salary Sacrifice + Cycle to Work

    All three (phone, EV, cycle) are common stacked director extraction routes. Different statutory bases. Phone is PURE employer-provided benefit (no salary sacrifice). EV + Cycle use salary sacrifice with OpRA exemption (for ULEV cars + cycles by statute).

    AMAP

    Independent reliefs. AMAP for private-vehicle business mileage; phone for communication. Both are zero-NI extraction routes for owner-directors. Stack independently.

    Workplace Pension Employer Contributions

    Both efficient extraction routes via different mechanics. Phone via s.319 (direct provision); pension via employer contributions to pension scheme. Both zero-NI for employee + company side.

    Common mistakes + audit triggers

    Worked example

    Marcus, Newcastle - Higher-rate Ltd Co director with annual phone refresh + work + personal smartphone use (2025/26)

    Marcus's Newcastle Ltd Co buys new iPhone every 2 years. 2025/26: new £1,250 iPhone + £40/month contract = £1,730 annual cost. Marcus is higher-rate-band director. Phone used ~70% business + 30% personal.

    Calculation: **Mobile Phone Exemption claim:** Contract in company's name → ✓ Ownership stays with company → ✓ Smartphone (cellular + data) → ✓ One phone only → ✓ Private use permitted under s.319 (no restriction needed) → ✓ **Tax treatment:** - Phone + contract entirely exempt from BIK + employee NI + employer NI + income tax for Marcus. - Company deducts £1,730 as business expense → CT relief 25% × £1,730 = £432.50. - **Net cost to company: £1,297.50** (£1,730 - £432.50 CT relief). **Comparison: Marcus pays personally from dividend extraction.** - Marcus needs £1,730 net cash → gross dividend £2,612 (after 33.75% higher-rate tax). - For company to fund £2,612 dividend from after-tax profits: pre-CT profit £3,483 (25% CT). - **Total company cost via personal-purchase route: £3,483.** **Saving via Mobile Phone Exemption: £2,186 per year on £1,730 of phone provision.** **5-year horizon (phone refresh every 2 years + annual contract):** Total phone + contract cost over 5 years ≈ £5,400. - Company cost via exemption: £5,400 × 0.75 = £4,050. - Company cost via personal-purchase: ≈ £10,870. - **5-year saving via Mobile Phone Exemption: ~£6,800.** Low admin, clean tax treatment, no salary sacrifice complications, predictable annual value, one of the easiest stable extraction routes for owner-directors.

    Statute reference: Income Tax (Earnings and Pensions) Act 2003 s.319 (single phone exemption) + s.316 (business-only second phone). HMRC manual: EIM21779 onwards.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    Can my Ltd Co buy me a new iPhone every year + claim the exemption?+
    Yes, provided each phone replaces the previous (only ONE phone benefits from s.319 at any time + ownership stays with company). Mechanics: company purchases iPhone in company's name; provides to director as company phone; previous phone returned to company or scrapped/recycled. Annual phone refresh is common for directors, keeps technology current + maintains s.319 exemption. **Important**: ownership must NOT transfer to the director. If you want to keep an old phone permanently as personal property, the company would need to sell it to you at fair market value (typically £50-£150 for a 1-2 year old smartphone), paying less than fair market value triggers BIK on the difference. Most directors return old phones to company stock + the company disposes via recycling / employee discount programs to other staff.
    Can my Ltd Co reimburse my personal mobile contract?+
    No, reimbursing a PERSONAL contract (in your name) is treated as PAYMENT OF YOUR PERSONAL LIABILITY → fully taxable as employment income + employee NI + employer NI. The exemption requires the CONTRACT to be in the EMPLOYER'S NAME. If you already have a personal contract you want to convert: transfer the contract into the company's name (most mobile providers allow this with credit check + admin fee). Once contract is in company name + ownership of handset transfers to company, the s.319 exemption applies going forward. The transition period (between personal contract + company contract) is a taxable benefit if company reimburses any portion.
    What about a SECOND phone for business use only?+
    Different mechanic, ITEPA 2003 s.316 (business use only, no significant private use). Provides exemption from BIK where the phone is genuinely used SOLELY OR ALMOST SOLELY for business with minimal private use. The 'significant' private use threshold isn't strictly defined but HMRC accepts incidental personal calls. For genuine 'work phone separate from personal phone' arrangements: company can provide a second phone under s.316 with NO BIK provided usage genuinely restricted to business. Documentation: phone usage logs, business-only call records, employee acknowledgment of restricted-use policy. If genuine restricted use can't be maintained: BIK arises on the second phone.
    Does salary sacrifice for a phone qualify?+
    NO, salary sacrifice arrangements for phones FAIL the s.319 exemption + are caught by OpRA rules (April 2017+). Benefit taxed on HIGHER of (BIK value) or (salary sacrificed). For phones, the salary sacrificed (lease cost) typically exceeds the s.319 BIK value (which would be zero) → effectively negates the exemption. Mobile phones must be provided as a 'pure' employer-provided benefit (company purchases + provides) to retain the s.319 exemption. Combined extraction approach: pension contributions via salary sacrifice (OpRA-exempt) + EV via salary sacrifice (OpRA-exempt below 75g/km) + phone as pure employer-provided benefit (s.319). Don't mix salary sacrifice with phone provision, keep them separate.

    Last reviewed: