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 or not the expense is allowable is key when considering 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 in order 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.
Having two separate phones; one for business and one for personal, you may have 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 were to be in your personal name, as long as your business one is being used entirely for business, you are able to claim that as an expense – the fact it’s been paid for privately doesn’t change the nature of the usage/ 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 purpose, in either your personal name or your business name.
If it’s in your personal name, claiming part of the cost as an expense can be a little more complicated. Given the inclusive calls now offered by many providers, it would be difficult to classify which of your business calls have incurred a charge, as many wouldn’t incur a charge per se.
It is possible to claim a proportion of the cost as a business expense, usually an appropriate percentage based on your usage split, as opposed to itemising each call cost. For example, using the phone half the time for personal and half for business, you can only claim 50% of the cost.
If you already have a phone contract in your personal name, there is the possibility of transferring the contract from yours to your company’s name by arranging this with your network provider, though it’s advisable to ensure you’re clear on the charges to do so, and whether having a business tariff would be more costly.
Our recommendation… If you will be using a phone for business and planning on claiming the cost as an expense, take out a phone and contract in your company name – something to think about if you’re nearing the end of your contract and about to renew. This goes for instances whereby you’d only want one phone for dual purpose – you may use your business phone for personal use.
You should also keep the invoice, so that you can clearly account for all your expenses and to be able to make the claim. It’ll also contain the VAT breakdown, needed if you’re VAT registered.
Claiming a smartwatch as a ltd company expense
As with claiming any expense through a limited company, it would need to be for something necessary to the business, and it could be difficult to demonstrate that smartwatches fall in this category due to 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, but an App Developer may need to use a smartwatch to understand how the app’s they develop will work on such a device.
Whether the smartwatch is also for personal use doesn’t matter so much, it’s more a case of whether it is needed for business purposes.
Although a smartwatch is not classed as a mobile phone, the same rules apply as above, where if you believe that the smartwatch is a genuine business expense needed for you to do your job, it’d be best to purchase it via the company account and 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 be tax deductible. However, this would create an income tax charge and an employer’s national insurance charge for the period that it is available to you as an employee.
Our recommendation…We very rarely come across any clients that can demonstrate their smartwatch is solely for business purposes, so we would suggest buying this personally to avoid the BIK situation and trying to prove otherwise. You can read more in Integro’s guide to business expenses.
Further reading – our guide to mobile, phone and broadband expenses.
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