Are there any circumstances in which an employee can have two mobile phones at the same time without a tax charge?

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Section 319 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provides a tax exemption for "the provision of one mobile telephone for an employee without any transfer of property in it". In principle, therefore, an employee who is provided with two mobile phones concurrently, which remain the property of the employer, will have to pay tax on one of them. The second phone is taxable as an "asset placed at the employee's disposal" in section L of form P11D and the cash equivalent is the cost incurred by the employer in providing the phone, less anything paid by the employee towards the cost.

The legislation does not say which of the two telephones is the one that is taxable. There is nothing to stop the employer reporting the phone with the lower cash equivalent.

There are, however, three situations where an employee could have two, or even more, telephones at the same time without incurring a tax charge on them.

1. Section 319 also limits the provision of a mobile phone to the use of one mobile telephone number. This makes it possible for an employee to have, for example, a mobile phone and an installed car phone with separate SIMs, as long as they share the same telephone number.
   
   
2. A separate exemption in section 316 of ITEPA removes any tax liability for the provision of "accommodation, supplies and services" in circumstances where
   
   
   • any private use by the employee or member of the employee's family or household is not significant, and
     
     
   • where it is used away from the employer's premises, it is provided solely so that the employee can perform the duties of the employment.
     
     

   If, therefore, the employer restricts the second telephone to business use only, that phone qualifies under the S.316 exemption and the other phone, which could be used exclusively for private use, is exempt under S.319.
   
   The s.316 exemption also applies to a computer that meets the two conditions, so it could also cover a Blackberry or PDA which, because of having computer-type facilities in addition to being a mobile phone, is viewed by HMRC as a computer. An employee could, therefore, have a mobile phone for private use and a Blackberry or PDA solely for business use, without a tax charge for either.
   
   

3. Up to and including the 2005/06 tax years, s.316 also provided a tax exemption for additional mobile phones provided for employees and for mobile phones provided for members of an employee's family and household. That more generous arrangement was repealed from April 2006 but continues to apply to employees who already had two or more mobile phones at that time. As long as the arrangements under which the phones were provided do not change, an employee continues to be exempt from tax for the additional phone(s).
   
   However, if the arrangement under which a second phone was provided changes, e.g. it is replaced or upgraded (other than under the terms of a warranty that was part of the original arrangement), the tax exemption ceases to apply to that phone. Similarly, if a second phone is withdrawn from one employee and given to another employee to use, any tax liability is considered in the context of the new recipient's circumstances.

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