Employer National Insurance costs are going up. Personal tax thresholds have been frozen for years. If you’re an employer trying to figure out how to reward your team without breaking the bank, you’re not alone.
When considering employee remuneration, employers often face the choice between providing a salary increase or offering benefits in kind. One increasingly popular benefit is the company mobile phone. But which option truly delivers more value?
Let’s explore the tax implications and run the numbers.
The tax treatment – understanding the difference
Pay rises are fully taxable
When you give someone a pay rise, it goes through the tax grinder. Income tax, employee NICs, employer NICs, and potentially reduced tax credits or Universal Credit. By the time it reaches your employee’s bank account, a chunk of it has disappeared.
Company mobile phones are tax-free
Under HMRC rules, a mobile phone provided by your company is exempt from both tax and NICs. There are conditions (it needs to be provided for business use, though private use is fine, and it’s limited to one phone per employee), but when you meet them, your employee gets the full value.
No tax deductions. No NICs. And you don’t pay employer NICs on it either.
Let’s look at the numbers
When you run the numbers through the calculations, it starts to get interesting.
Example 1: Basic rate taxpayer (£35,000 salary)
Scenario A: £600 annual pay rise
- Gross pay rise: £600.00
- Less: Income tax (20%): -£120.00
- Less: Employee’s NIC (8%): -£48.00
- Net benefit to employee: £432.00
Employer’s true cost:
- Gross pay rise: £600.00
- Plus: Employer’s NIC (15%): £90.00
- Total cost to employer: £690.00
Scenario B: Company mobile phone package
- Phone handset (amortised over 2 years): £400.00
- Annual contract (unlimited data/calls): £300.00
- Less: Income tax: £0.00
- Less: Employee’s NIC: £0.00
- Less: Employer’s NIC: £0.00
- Total cost to employer: £700.00
- Full value to employee: £700.00
The result
For almost the same cost (£690 vs £700), your employee gets £700 of value from the phone versus only £432 take-home from the pay rise. That’s 62% more effective value.
Example 2: Higher rate taxpayer (£60,000 salary)
Scenario A: £600 annual pay rise
- Gross pay rise: £600.00
- Less: Income tax (40%): -£240.00
- Less: Employee’s NIC (2%): -£12.00
- Net benefit to employee: £348.00
Employer’s true cost:
- Gross pay rise: £600.00
- Plus: Employer’s NIC (15%): £90.00
- Total cost to employer: £690.00
Scenario B: Company mobile phone package
- Total cost to employer: £700.00
- Full value to employee: £700.00
The result
For higher earners, the difference is even more stark. They receive £700 of value versus only £348 take-home. That’s a 101% increase in effective value.
Beyond the tax savings
There’s more to this than just the numbers. A company mobile phone also means:
Business connectivity – Your team stays connected to work systems, emails, and colleagues. Better productivity, faster response times.
Personal savings – Your employees don’t need to pay for their own phone or contract anymore. That’s real money back in their pocket.
Security – Corporate mobile device management keeps your data secure and ensures compliance with company policies.
Professional boundaries – A dedicated business number helps employees maintain a clear line between work and personal life.
Less admin – One bill for you, rather than processing expense claims or managing allowances.
Up-to-date tech – Regular phone upgrades mean your team always has current technology without personal expense.
What you need to know to qualify
HMRC requirements
To get the tax exemption, the mobile phone must be provided by your company under a contract in your company’s name. The exemption covers:
- The cost of the handset
- Line rental and call charges
- Insurance and accessories
The limits
Only one mobile phone per employee qualifies for the exemption. Provide a second phone, and it becomes taxable. It’s also worth knowing that cash allowances paid to employees to buy their own phones are taxable and subject to NICs.
HMRC has clarified that this exemption does not extend to tablets, even though they do similar things. In HMRC’s view, a mobile phone’s primary purpose is making and receiving calls. Tablets are treated more like laptops or PCs.
Salary sacrifice alternative
Some employers use salary sacrifice arrangements for mobile phones, which can offer similar tax advantages while giving employees a choice in their device. These need careful structuring to meet HMRC requirements, so it’s worth getting advice before setting one up.
If you’re looking for cost-effective ways to reward your team, company-provided mobile phones deliver exceptional value. The tax exemption means every pound you spend goes directly to your employee, unlike pay rises, where a significant chunk disappears in tax and NICs.
For basic rate taxpayers, the effective value is roughly 62% higher than an equivalent gross pay rise. For higher-rate taxpayers, it’s over 100%. Add in the connectivity, security, and convenience benefits, and it becomes a pretty compelling option.
In a competitive market where attracting and retaining good people is tough, tax-efficient benefits like mobile phones offer a smart way to enhance your total compensation package without proportionally increasing your costs.
