The provision by employers of mobile phones for employees is today very common. Employers want to be able to contact their employees throughout the working day and a full tax exemption makes it an attractive perk for the employee. Typically, employers will allow their staff to use the phone for sending and receiving private calls, as long as the employee is not running up significant extra costs in the process.

Mobile phones are evolving very rapidly, however, and the first step in considering the tax treatment is to be sure that the item in question is in fact a mobile phone rather than, for example, a personal computer. In the past, it was usually clear cut but, as technology advances, the distinction between a phone and a mobile computer is becoming less clear. The iPhone, for example, is in reality a powerful computer, though its name and the way it is sold both tend to indicate that it is still primarily a telephone.

Logically enough, the legislation defines a mobile phone by identifying two key features: it must be mobile, and it must constitute telephone apparatus.

The “mobility” part is relatively straightforward. It must not be physically connected to a landline, and must not be used only as a wireless extension to a landline phone.

It is the definition of “telephone apparatus” that is potentially more problematic. The technical definition is that the term covers “telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service”.

Two key points emerge from this definition. First, the test is how the item is “designed or adapted” rather than how it is used. So if two employees are provided with identical smartphones, then in principle the tax treatment will be the same, even if one uses it only for calls and the other uses it almost exclusively for surfing the internet.

The test then is the “primary purpose” for which the item has been made. Smartphones, while having additional functions to the sharing of spoken information, continue for now to be classed as mobile phones, because the primary purpose for which they are made is still that of spoken communication. This, at least, would appear to be the correct outcome, though it seems likely that the matter will become even less clear cut over the coming years.

Equipment whose primary purpose is not that of sharing spoken messages, such as iPads or laptop computers, are not classed as mobile phones, even though they may use the internet to send spoken information. A device using Voice Over Internet Protocol (VOIP) systems to send and receive voice messages, which is not connected to a public electronic communications network, is unlikely to satisfy the “primary purpose” requirement in order to be classed as a mobile phone.

Satellite navigation devices (“sat navs”) are another area of developing technology, but would not be classed as mobile phones as their primary purpose is clearly different, even if they have built-in speaking options.

Personal Digital Assistants (PDAs) would not in the past have been classed as mobile phones, but many modern PDAs have now evolved into smartphones, which would therefore be classed as such.

If in doubt, employers should contact their PAYE tax office to clear the matter up.