Mobile phones are a lifeline for creative businesses – from design studios coordinating with clients to marketing agency owners fielding calls at all hours. But are you handling your mobile phone costs in a tax-efficient way that HMRC will accept? This guide explains how to claim mobile phone expenses without violating HMRC rules, focusing on the key points for small creative businesses, marketing agencies, and freelancers.

We'll cover how providing a mobile phone through your company can be tax-free, how to claim for business calls on a personal phone, common mistakes to avoid, and some real-world examples. By the end, you should feel more confident about managing your mobile phone bills in a way that stands up to HMRC's scrutiny – with references to HMRC’s manuals to back you up.

How to claim for a Mobile Phone from a Limited Company

Tax-Free Mobile Phone Provision: One Phone, No Tax Headaches

Imagine giving yourself or your employees a mobile phone that the business pays for without any additional tax – the good news is, you can. HMRC allows each employee (including you as a company director) to have one mobile phone provided by the company completely tax-free (EIM21779). This means the phone itself, the monthly line rental, and even any private calls on that phone can all be paid by the company with no benefit-in-kind charge and no need to report it on form P11D. In other words, one company-provided mobile phone per person is exempt from tax and National Insurance reporting.

However, this exemption comes with essential conditions. To qualify for tax-free treatment, the mobile phone's contract must be in the company's name and paid directly by the company (usually from the company bank account) (Mobile Phones - Whats Exempt). If you're a small agency owner, this typically means setting up a business mobile plan for yourself (and any staff) rather than using a personal contract. The HMRC guidance is clear that you must not provide more than one phone per employee – if you give the same person a second phone, the second one won't be exempt and would count as a taxable benefit. Similarly, you cannot claim this exemption for phones given to family or household members who aren't employees on the payroll.

Tip: Make sure the phone contract is set up correctly. If you cannot get the contract in the company's name (for example, some carriers require personal contracts for specific plans), tread carefully. In such cases, even if the company is paying the bill, HMRC might not view it as a provided benefit but rather as you being reimbursed, which could trigger reporting requirements or a tax charge. In this case, you must prove to HMRC that the phone was acquired "wholly and exclusively" for business use (an impossible test if the phone is also used personally). In practice, to keep things simple and bulletproof under HMRC scrutiny, getting the phone contract under the company's name is best to take advantage of the tax-free rule.

Claiming Business Calls on a Personal Phone: Only the Business Part Counts

What if you're using your personal mobile phone for work calls, as many freelancers and small business owners do? You might not have a separate company phone contract – perhaps you prefer using one phone for everything. Can you still get a tax deduction for the business use of that phone? The answer is yes – but you must be careful only to claim the business portion of the expenses. HMRC will expect you to apportion the costs and claim only the part related to your work, not your personal use.

Importantly, if the phone is personally owned or the contract is in your personal name, you cannot claim the entire phone bill or monthly plan as a business expense. According to HMRC rules, costs that are not wholly and exclusively for business are not deductible – and a personal phone contract almost always includes a mix of business and private use. HMRC explicitly says that if a company (employer) reimburses an employee's personal phone contract or fixed monthly tariff, that payment is treated as additional salary for tax purposes (i.e. subject to tax/National Insurance) (Mobile Phones - What to report and pay). In plainer terms, a personal phone's line rental or base contract cost is considered a personal expense, so you can't claim tax relief on it. The only part you can adequately claim or reimburse without tax is the cost of business calls beyond that regular monthly cost.

Here's how to approach it: focus on the extra costs incurred solely because of business use. Typically, this means any charges for calls (or messages, data, etc.) over and above your regular plan due to business activity. For example, suppose your personal plan gives you a certain amount of minutes or data for a set fee, and your business calls cause you to exceed those limits. The excess charges attributable to business use can be claimed in that case. You'll need to calculate a reasonable percentage of the bill corresponding to business calls. HMRC expects you to account for even the calls within "free" allowances when doing this calculation. In practice, you would determine what fraction of your total usage (minutes, texts, data) in a period was for business and apply that fraction to any charges beyond your standard plan cost.

This can sound a bit abstract, so let's illustrate with a practical scenario:

Your personal phone plan costs £30 per month and includes 60 inclusive minutes. In March, you used 50 minutes (20 for business calls with clients and 30 for personal calls). Your bill was still £30 – it didn't go up, because all 50 minutes were covered by your plan's included 60 minutes. Result: Your business calls have no additional cost, so no claim can be made for that month. Even though 20 minutes were for business, they didn't cost you extra out-of-pocket, so there's nothing to deduct. HMRC's rule is that no tax deduction is allowed if there is no identifiable extra cost exclusively for business.

Now, in April, let's say business picked up. You used 100 minutes (60 for business, 40 for personal). This time, you exceeded your plan's 60-minute allowance and incurred an extra £10 in call charges, making your total bill £40 for the month. Since 60% of your total minutes were business-related, you can reasonably claim 60% of the £10 extra charges, i.e. £6, as a business expense. That £6 represents the portion of the additional cost that was wholly for business calls. In HMRC's eyes, claiming this £6 should be acceptable because it's directly linked to business use. In contrast, the original £30 plan cost and the portion of extra charges due to personal use are not claimable.

In practice, keep detailed records of your phone usage if you plan to claim expenses for a personal phone. You should have itemised bills or a log highlighting which calls were work-related. HMRC may ask for evidence of how you arrived at the business use percentage. If your tariff provides unlimited calls/texts and a fixed cost, it becomes tricky – essentially, no distinct cost for business use means no claim, as we saw in the first example. You can justify a deduction only when your business use causes an identifiable extra expense.

If you run a limited company and want to handle this via the company, the usual approach is for the employee (or director) to submit an expense claim for the business calls made on their personal phone. The company can then reimburse that amount. Crucially, the reimbursement should cover only the business element – for instance, that £6 in the example above. If done this way, HMRC does not treat it as a taxable benefit, and you do not need to put it on a P11D because it's a legitimate business expense reimbursement. On the other hand, if the company were to pay your entire £40 bill in April, then the £30 basic charge (and the £4 of extra charges attributable to personal use) would effectively be personal expenses paid by the company, which would be taxable (either as a benefit in kind or through payroll). In summary, only claim what was purely for business and avoid trying to pass personal costs to the company.

Common Pitfalls and HMRC Scrutiny: Mistakes to Avoid

Mobile phone expenses are an area where it's easy to slip up if you're not careful. Here are some common pitfalls that creative business owners should avoid and what HMRC is likely to challenge if they come knocking:

- Providing more than one phone per person: As tempting as it may be to give an employee both a smartphone and, say, a separate device, remember that HMRC's exemption is strictly one phone (or SIM) per employee. If your company provides two mobile phones to the same person, the second one will not be tax-free – it becomes a taxable benefit. This is a red flag for HMRC. They expect to see any additional phones reported on P11D or taxed accordingly. So, if your creative agency's creative director somehow ended up with an iPhone and a spare Android from the company, you can count on HMRC to ask questions. Please stick to one phone each to keep it simple.

- Putting personal contracts through the business without proper structure: This is a big one. Some owners pay their personal phone bills from the business account or have the company reimburse the full cost without realising this can create a taxable benefit. HMRC will scrutinise phone expenses paid by a company to ensure the correct treatment. Suppose the phone isn't under a company contract (for example, it's in your own name). In that case, HMRC's view is that the company is settling a personal bill on your behalf – tantamount to extra salary. The amount should be taxed or reported in such a case, not hidden as a tax-free expense. Don't assume HMRC won't notice: in a small business investigation, they often look at director's loan and expense accounts. A recurring payment to a phone company without a company contract could raise eyebrows. The safe approach, as discussed, is either to get the phone under the company name or only have the company reimburse distinct business call costs (with documentation).

- Claiming the entire phone bill as a business expense (when it's not 100% business): We get it – your phone is glued to your hand for work. But unless you have a separate telephone strictly for work, HMRC knows there's an element of personal use. One mistake is to claim 100% of a personal phone's bills as a business expense in your accounts or self-assessment. HMRC's guidance explicitly requires apportionment. They expect only the "wholly and exclusively" business element to be claimed. If you try to deduct the full cost without splitting usage, you're likely over-claiming and could face a challenge. The taxman may ask for proof that every call was business-related – a nearly impossible test if you've made any personal calls or used any part of an inclusive plan for yourself. Always be realistic and only claim a fair, justifiable percentage.

- Not keeping evidence of business use: This goes hand-in-hand with the above. If you claim for business calls on a personal phone, you should maintain copies of phone bills and highlight business calls or keep a call log. In a creative business, you might have many short calls to clients, suppliers, collaborators, etc. – losing track is easy. If HMRC inquires, you'll need to demonstrate how you arrived at, say, "40% business use" for your phone. HMRC could disallow your claim without itemised bills or records because it's not substantiated. Avoid this by keeping good records monthly. This is especially important if you're a sole trader or in a partnership (where you claim phone expenses directly on your tax return). Still, it's equally relevant for company directors to have the company reimburse them.

- Paying allowances or cash to staff for phone use: If you have employees and you give them an extra cash allowance to cover "phone use" (instead of the company providing the phone or paying actual bills), note that those payments will be treated as taxable earnings. For instance, telling an employee, "Here's £30 a month to use your own phone for work", doesn't utilise the mobile phone exemption – HMRC will see that £30 as just an additional salary subject to PAYE. The tax-free perk only works when the company directly provides the phone/service or reimburses actual business call costs, not when giving employees cash to get their own phone. A better approach to compensate staff for phone use is to either provide the phone under the company contract (tax-free) or reimburse actual business calls on their bill (no tax on the reimbursement). Don't just add £X to their pay and call it a "phone allowance" – that won't fly without taxes.

- Forgetting the "family exclusion" rule: A common scenario in small businesses is when the owner tries to put a family member's phone on the company. Remember, the exemption does not cover phones for family or household members who aren't employees. If your spouse or your child isn't on the company payroll, but you pay for their phone through the business, HMRC would consider that a benefit for you (or for them, via you) and taxable. There's one workaround: if that family member is an actual business employee, they are treated like any other employee – they can have one tax-free phone in their own right. But paying your household's phone bills through the business when those people don't work for you is a no-go. It's safer to keep personal family phones separate from the company finances.

In short, HMRC focuses on preventing abuse of the mobile phone perk. The rules are generous for genuine business needs, but they draw precise lines. To stay out of trouble, abide by those lines: one phone per staff member, the company pays the provider directly, claims only actual business usage costs on personal phones, and documents everything. Following these guidelines, any HMRC inspection should find your mobile phone claims squeaky clean.