Last updated: 14 October 2026
Does it matter if the employee bought the pay-as-you-go phone?
Yes. The tax exemption for mobile phones only applies where the employer provides the phone and the contract is in the employer’s name. If an employee buys a pay-as-you-go phone or top-ups themselves and you reimburse them, the reimbursement is normally treated as earnings, so it’s subject to PAYE and Class 1 NIC. The exception is where you only reimburse the cost of specific business calls, which can be paid tax-free.
Employer-provided phone versus reimbursement
| Arrangement | Tax and NIC |
| Employer buys the phone and contract is in its name | Exempt, one phone per employee |
| Employer pays the provider directly for a PAYG phone it owns | Exempt |
| Employee buys phone or top-ups; employer reimburses in full | Taxable and NICable as earnings |
| Employee’s own contract; employer reimburses itemised business calls | Exempt |
| Employer pays employee’s own contract bill directly | Taxable; Class 1 NIC through payroll |
Why ownership matters
The exemption covers a phone “provided” to the employee. If the employee owns the handset and the contract, any payment is a reimbursement of a personal liability. Line rental and bundled minutes can’t be split into business use, so only identifiable extra business call costs are covered.
Example
Faisal runs a plumbing business. His engineer, Josh, buys a £150 PAYG phone and spends £15 a month on top-ups. Faisal reimburses everything, £330 a year. This is taxable earnings for Josh, with tax and NIC through payroll. If Faisal buys the phone in the company’s name and tops it up himself, the whole cost is exempt and deductible for the business, with nothing to report.
Making it tax-free
- Buy the handset and SIM in the business name
- Pay top-ups directly from the business account
- Keep the phone as a business asset and record which employee has it
- For employees’ own phones, reimburse only itemised business call charges
VAT
If the business buys the phone and pays the bills, it can reclaim VAT on the business element. It can’t reclaim VAT on reimbursements to employees for their own contracts.
Salary sacrifice
A phone provided through salary sacrifice is still exempt, as mobile phones are excluded from the optional remuneration rules.
Common mistakes
- Reimbursing personal top-ups as “expenses” without payroll deductions
- Providing more than one exempt phone per employee
- Treating smartwatches or tablets as phones (they’re not covered)
- Not keeping itemised bills for business call claims
Records to keep
Keep the purchase invoice, contract or top-up receipts in the business name, and a record of which phone each employee has. For reimbursements, keep itemised bills marked with business calls.
Reimbursing business calls properly
Ask employees to highlight business calls on an itemised bill and reimburse only those. With bundled minutes, there is usually no identifiable extra cost for each call, so a phone in the employer’s name is the cleaner solution.
Frequently asked questions
Can a director have a company phone tax-free?
Yes, under the same rules.
Is a phone for a family member exempt?
No, it’s a taxable benefit.
What about a SIM-only deal?
Exempt if the contract is with the employer.
Do I report an exempt phone on a P11D?
No.
Related: providing mobiles to employees, telephone bills in a PAYE inspection and phone and internet costs.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with benefits and expenses. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
