What do mobile phones, personal calls and VAT have in common? That's a very good question and, if you are responsible for your company's mobile fleet, the answer will change the way you manage your company's mobile phones.
You probably won't have spotted much in the press on UK firms who shouldn't have reclaimed VAT on mobile phone bills. That's because companies don't like to publicise the fact that Her Majesty's Customs and Excise have fined them 1 million [pounds sterling].
The problem relates to the personal use of company provided mobile phones. Whilst the Inland Revenue is no longer concerned with personal use of company mobile phones, Customs and Excise are interested in personal use and have set up a task force specifically to pursue companies who reclaim the VAT on such use.
Section 33 of the VAT Guide (700) details the principles being enforced. For example section 33.2 states:
"You cannot treat VAT incurred on purchases of goods and services as input tax unless you intend to use those goods or services for the purpose of your business."
What this means is that you can't claim VAT back on any personal calls made by staff on a company mobile--authorised or not, and reimbursed or not--and you could face a SUBSTANTIAL penalty if you do.
You may ask, "What's it got to do with me? This is the FD's problem."
Well, the 'what' is the collation of usage information, more specifically the separation of personal calls from business calls, their itemisation and summary and the setting and policing of a personal use policy. Even if this doesn't fall under your remit, I'm sure the accountants would welcome a bit of guidance.
The VAT Guide suggests ways to apportion personal and business use; each requires an end of year audit to verify that figures are "fair and reasonable". Even if you don't allow personal use, you must demonstrate adherence and have reporting to detect, record and deal with abuse.
The result is the need to identify and log all personal calls made on company owned mobile phones--which requires time consuming user and management involvement Add on the complexities of checking GPRS bills and data volumes, and the future threat of having goods and services charged alongside calls, and you have the makings of a major headache.
Many companies are turning to technology to help, but even the best online bill tracking system doesn't take away the pain completely, and this can be expensive to set up and maintain. Some companies use a managed service provider to look after their mobile phone billing. The few extra pounds per mobile for the management of bills and day to day activity makes good sense for medium to large mobile fleets, allowing flexibility with no investment.
Although I advise companies on their communications professionally, I am not an accountant. The high level information presented here is designed to alert you to the issues and is not a definitive guide. Your accounts department VAT specialists should be engaged to jointly address this issue to ensure all pertinent aspects are covered for your company. Please remember ignorance is not an excuse with Customs and Excise so don't get caught out!
Coming soon ...
CMA Regulatory Forum-Regulation and the view from a "new SP"
6th April, venue to be confirmed
CMA and BT Billing Meeting
27th April, BT Centre, London
To register for events, or for membership details, please call Sylvia Scottow on 01372 361234 or email sscottow@thecma.com
For further help please small me at jwright@thecma.com
John Wright, FCMA, Independent Communications Management Consultant.
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