Is the cost of my smartphone (or smartwatch) an allowable limited company expense?

Almost everyone has a smartphone these days – typically using them for both personal and business purposes. With this in mind, can you legitimately claim the costs of smart devices against your limited company’s tax bill?
Claiming costs as expenses through your business will reduce taxable profits and, in turn, reduce your company’s corporation tax liability, thus increasing net profits.

Whether an expense is allowable is key when evaluating all types of business costs.

There will always be some exceptions to the rule, but, generally speaking, all costs must be incurred wholly and exclusively for the purpose of the business to be claimed as a deduction.

You should also ensure you keep adequate records to back up and substantiate any costs.

Here, Christian Hickmott, Managing Director of Integro Accounting explains how smartphones (and smart devices) are treated for tax purposes.

Claiming a smartphone as a limited company expense

We see two scenarios when asked this question:

Those with separate mobile phones for personal and business usage

A mobile phone is one of the few costs that come with an exception to the ‘wholly and exclusively rule’ as any non-business use will not create a benefit in kind.

You may have two separate phones, one for business and one for personal, one in your personal name, and one in the name of your limited company.

Of course, keeping things separate like this does make bookkeeping a little simpler.

However, if both are in your personal name, as long as your business name is used exclusively for business, you can claim them as expenses. The fact that they were paid privately doesn’t change the nature of the use or cost.

Those with one phone for both personal and business usage

What if you don’t want two phones? Then you’ll have one phone for dual use, under either your personal or business name.

If it’s in your personal name, claiming part of the cost as an expense can be more complex.

Given the inclusive calls now offered by many providers, it would not be easy to classify which of your business calls have incurred a charge, as many wouldn’t incur a charge per se.

You can claim a proportion of the cost as a business expense, typically at a percentage based on your usage split, rather than itemising each call cost.

For example, if you use the phone half the time for personal use and half for business, you can claim only 50% of the cost.

If you already have a phone contract in your personal name, you can arrange to transfer the contract to your company’s name by arranging this with your network provider.

However, it’s advisable to ensure you’re clear on the charges and whether having a business tariff would be more costly.

Our recommendation… If you are using a phone for business and plan on claiming the cost as an expense, take out a phone and contract in your company name – something to consider if you’re nearing the end of your agreement and about to renew.

This applies when you only want one phone for dual purposes—you may use your business phone for personal use.

You should also retain the invoice so you can clearly account for all your expenses and submit the claim. It’ll also contain the VAT breakdown, which is needed if you’re VAT-registered.

Claiming a smartwatch as a limited company expense

As with claiming any expense through a limited company, the expense must be necessary to the business, and it may be challenging to demonstrate that smartwatches fall into this category, given their broad functionality.

For example, a Management Consultant doesn’t need to count their steps each day, track their heart rate, and answer calls via their watch in order to fulfil their role.

However, an App Developer may need to use a smartwatch to understand how their apps will work on such a device.

It doesn’t matter much whether the smartwatch is also for personal use; the question is whether it is needed for business purposes.

Although a smartwatch is not classed as a mobile phone, the same rules apply as above. If you believe the smartwatch is a genuine business expense required for your job, it’s best to purchase it through the company account in the company name.

You could, however, claim that the watch is part of your remuneration package, which would then mean it is wholly and exclusively for the purposes of the business and would be tax-deductible.

However, this would create an income tax and an employer’s national insurance charge for the period it is available to you as an employee.

Our recommendation…We very rarely encounter clients who can demonstrate that their smartwatch is solely for business purposes, so we suggest buying this personally to avoid the BIK issue and any attempt to prove otherwise.

You can read more in Integro’s guide to business expenses.

Further reading – our guide to mobile, phone and broadband expenses.