Saving Tax Through Incorporation: Mobile Phones

Mobile phone? Next time a colleague tells you they have incorporated to save tax, ask them if they have a mobile phone. This may seem a bit of an odd question but in the long term you’ll be doing them a favour. How?

Easily overlooked. With all the paperwork involved in setting up a new company, it is easy to forget about transferring existing personal airtime contract into the company’s name, particularly if the phone company insists that you have to wait until the end of your current contract. The problem is that all the time the company is paying the bill you are liable for tax on any private calls you make on that phone. E.g. with £50 of private calls/texts etc a month there is a potential annual income tax bill of £240 (12 x £50 = £600 x 40%) for a higher rate taxpayer (or £132 for a basic rate taxpayer).

Tip 1. If the company has already submitted its return of benefits for 2002/03 (excluding this potential problem) then leave it as it is, there is no point in stirring up a hornet’s nest. Find out when the contract is up for renewal and change it to the company from that point in time. At least try to be in the right position for the 2003/04 benefits return so that, if queried by the taxman, you can say that the contracts are in the name of the company.

Tip 2. If you are incorporating, insist that the airtime contract is changed. If you have to wait for this to happen, in the meantime, avoid making private calls with that phone if the company is going to be settling your bills, or pay for the private calls yourself. Of course, any new contracts (for members of the family for instance) should be taken out by the company to take advantage of the tax-free status of mobile phones.