HMRC: Smartphones Officially Mobiles

In a Revenue & Customs Brief 02/12, HMRC has entered the 21st century and revised its interpretation as to what constitutes a mobile phone, to include smartphones, and therefore exempt these devices from income tax. Up until very recently smartphones were only exempt from tax if they were provided by the employer solely for business purposes and any private use was not significant. 

Since the emergence of smartphones into the consumer mobile phones market circa late 2007, HMRC has always considered the devices to be Personal Digital Assistants (PDA's) as they combined the functions of a mobile phone with many of the functions associated with a computer. That view was based on the understanding that smartphones were not devices that are designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.

The Revenue now accepts that devices such as the iPhone, Blackberry and their counterparts satisfy the conditions to qualify as 'mobile phones'. Developments in PDA's following the penetration of smartphones into consumer markets from late 2007 onwards means that many modern consumer PDA's are also likely to be smartphones although HMRC warns that this will not apply to devices that are solely PDA's.

HMRC's view as to what it considers to be a smartphone is based on its understanding at the beginning of 2012 and because of the rapidly changing technology it cannot be certain that future devices will fall within the definition of mobile phone.

There are many types of devices that have telephone functionality but which do not qualify as mobile phones. Examples of such apparatus include satellite navigation devices, tablet and laptop computers. In general, devices that use Voice Over Internet Protocol (VOIP) systems, e.g Skype, to make and receive phone calls will not satisfy the primary purpose test.

Employers that have provided their employees with a smartphone from 6th April 2007 onwards and declared such as a benefit-in-kind on form P11D or included the benefit in a PAYE Settlement Agreement may now apply for retrospective repayments of Class 1A NIC. Likewise employees who have paid tax on such a benefit may apply for a refund of overpaid tax for years 2007/08 et seq. The time limits for claiming a tax repayment is four years from the last day of the relevant tax year but HMRC has confirmed that it will consider any claims made for 2007/08 if they are made on or before 31st July 2012. Time limits for refunds of Class 1A NIC are later, so compliance with the dates for income tax will ensure that the time limits for claiming a Class 1A repayment is satisfied. 

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