By Daniel Hunter
BDO, the accountancy and business advisory firm, has successfully persuaded HMRC to change its interpretation of the law regarding its approach to taxing smartphones and PDAs.
Tax legislation has struggled to keep pace with the rapid development of technology. Computers and mobile phones are treated differently for tax purposes and the increasingly blurred lines between them has often fuelled debate. One contentious issue in this debate has been the definition of a smartphone and whether they are a benefit for income tax and national insurance purposes.
Mobile phones are exempt for income tax purposes, but in order for a device to be classified as a mobile phone, its “primary purpose” must be for “transmitting and receiving spoken messages”. Previous HMRC guidance stated that smartphones did not fall within this definition, meaning their provision for private use was taxable unless private use was reimbursed.
However, on the 20 February 2012, following more than 18 months of negotiations with BDO, HMRC released Revenue & Customs Brief 02/12, which stated that their previous “application of the legislation to smartphones” to be “incorrect” and they are now treated as mobile phones for tax purposes. This means that employers no longer need to consider how to monitor private usage or calculate a complicated tax charge based on numerous different payment packages.
BDO was instrumental in influencing HMRC’s reclassification through its analysis of smartphone usage and revenue stream data obtained from Carphone Warehouse, Vodafone and Nielson. This analysis clearly highlighted that “spoken messages” are by far their primary purpose. Smartphone usage was also considered alongside other employee benefits where private use was a factor.
“It was clear from our thorough analysis of smartphone usage that the previous tax guidelines did not reflect the reality of individuals’ usage and I am delighted that HMRC shared our view and changed its approach," David Gardner, Tax Director at BDO LLP, commented.
"This new approach will provide employers with the opportunity to simplify internal administration, reclaim NIC or tax paid in the past and to offer smartphones more widely as a benefit or business tool.”
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