THousands of people with smartphones provided by their employer will be able to reclaim hundreds of pounds in tax refunds, following a rule change by HM Revenue & Customs. HMRC used to insist that smartphones, such as iPhones, Blackberry and many Android devices, were not the same as conventional mobile phones and so were subject to tax as a ‘benefit in kind’ where employers provided them to employees who were allowed to use them outside work. Now the tax authorities have decided they are ‘appy’ to waive the tax on new technology. The about-turn follows a dramatic increase in the number of smartphones in the UK. The regulator Ofcom estimates that 47 per cent of all teenagers and a quarter of all adults in the UK own a smartphone. Chris Lee, a partner at accountants James Cowper, said: “HMRC has finally woken-up and found itself in the 21st Century. Smartphones are in many cases an indispensable business tool and it is right that they should not be treated as a taxable benefit.” The new interpretation of the rules potentially allows employees to reclaim any tax they might have paid back to the tax year 2007/08. Mr Lee said this could amount to several hundreds of pounds: “Unlike ordinary mobile phones, which can be provided tax free to employees, smartphones have until now been treated as a taxable benefit. Tax can be charged on 20pc of the value of the device plus private usage costs. Smartphones can cost upwards of £400, so employees who have had a smartphone for several years could potentially claim back £200 or £300”. The new rules do not apply to tablet computers, such as iPads, even though it is possible to make and receive calls via them. Devices that uses Voice Over Internet Protocol (VOIP) systems to make and receive phone calls are unlikely to meet the new definition of a mobile phone, so they may continue to be subject to tax where provided by employers. Richard Mannion, a director of accountants Smith & Williamson, explained: “The benefit in kind rules provide that where an employer provides an employee with a mobile phone there is no income tax payable on the benefit whether or not the phone is used for private calls, provided the contract is between employer and the phone operator. “Previously HMRC said that the definition of mobile phone for this purpose did not extend to a smartphone, but they have now announced that they have changed their mind with retrospective effect. This is a pragmatic and welcome recognition by HMRC that their original interpretation has been overtaken by the speed of change in technology.” However, taxpayers will also need to move quickly if they want to make the most of refunds. The deadline for making repayment claims relating to the tax year that ended on April 5, 2008, is April 5, 2012. So anyone eligible to reclaim tax for that year will need to get their skates on.
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