Clause 60
Finance (No.2) Bill
10:45 am
Mark Francois (Shadow Minister, Treasury; Rayleigh, Conservative)
May I, too, welcome you to the Chair, Mr. O’Hara? The most controversial part of chapter 5 of the Bill, which deals with personal taxation, is undoubtedly clause 61, which paves the way for the abolition of the popular home computing initiative, a decision that is still very much to be regretted, but that we dealt with in some detail in the Committee of the whole House. Clause 60 is an associated though less immediately controversial issue. Essentially, it seeks to limit to one phone any tax reallocation of mobile phone use by an employer to an employee. It was covered by the same regulatory impact assessment as clause 61, to which I shall refer shortly.
There are two areas in which it would be helpful to have clarification from the Paymaster General on the intended operation of the clause.
To begin with, there appears to be a residual ambiguity as to the permitted degree of personal use—if any—of the one mobile phone to which the clause refers, and on the tax implications, because there are differences between what is said in the Bill and the explanatory notes on the one hand and in the subsequent regulatory impact assessment on the other.
On clause 61, the Government now say that people who are provided by their employer with a computer at home for business purposes will not be taxed on that computer as a benefit in kind, provided that any personal use of it is not significant. After debate, the Paymaster General offered to consult employers to define the term “not significant,” and I understand that that work is ongoing. However, I should like to know the parallel position under clause 60 in relation to mobile phones that are provided for business purposes.
The explanatory notes initially implied that there was to be no attempt to regulate the extent of such private use for the purposes of identifying a taxable benefit in kind. Paragraph 1 of the notes states, fairly clearly:
“This clause replaces the exemption for employer provided mobile telephones in section 319 Income Tax (Earnings and Pensions) Act 2003. It provides that no tax will be due when employers make only one mobile telephone available for private use and removes the availability to family or household tax-free.”
Paragraph 16 of the notes then says:
“The clause re-focuses the relief provided by the exemption, keeping administrative burdens for employers to a minimum where a mobile telephone is provided for business use and private use is also made.”
Furthermore, when one looks at the clause, one sees that new section 319(1) to be inserted in the Income Tax (Earnings and Pensions) Act 2003 says:
“No liability to income tax arises by virtue of section 62 (general definition of earnings) or Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of one mobile telephone for an employee without any transfer of property in it.”
So far, so good. However, the associated regulatory impact assessment, which was signed by the Paymaster General on 24 April—a fortnight or so after the changes made by clause 60 came into effect—observes that there are now some 50 million mobile phones in use in the United Kingdom. That is a very large number. The RIA does not attempt to break it down into phones provided primarily for business purposes and those that are for personal purposes, but at paragraph 41 it states:
“Employers will still be able to benefit from the deregulatory objectives behind the mobile phone exemption when only one mobile telephone is made available for private use or where a mobile phone is provided for business purposes and there is insignificant private use.”
However, paragraph 23 of the RIA, entitled “Implementation and Delivery Issues,” states more explicitly:
“Where additional mobile phones are made available for private use or where private use of a business mobile phone is significant it will be liable to a tax charge and Class 1A National Insurance in the same way as any other benefit in kind.”
So a literal reading of the RIA implies that there could be a benefit in kind in certain circumstances of provision of an individual mobile phone. If that were the case, employers might be expected to define for taxation purposes the amount of personal use of that mobile phone, even if they had provided only that one mobile phone to their employee. There might be a considerable compliance burden for companies that sought legitimately to remain on the right side of the line. The regulatory impact assessment acknowledges the potential compliance burden at paragraph 54:
“Compliance costs would arise from employers having to report to HMRC the benefits in kind that would be subject to tax and Class 1A NICs under these proposals, the potential need for records to be kept and the implementation of extra coding notices for employees.”
The length of that process might be considerable. For example, if a mobile phone were provided primarily for business use, employees and employers might have to spend hours trawling through mobile phone bills to identify incidental private use and establish whether it was significant. That decision would in itself be subjective, and it might lead to unnecessary disputes between employers and employees, and then, indeed, employers and HM Revenue and Customs.
If, as is often the case in this day and age, the employer paid a fixed monthly amount and call charges were free up to a certain limit, how would “significant” be determined? How should the employee quantify the additional cost to reimburse his or her employer in order to avoid a tax charge? Put another way, assuming that the employee does not or cannot identify the cost of private calls, how should the employer compute the taxable amount in order to remain on the right side of the line?
The Institute of Chartered Accountants in England and Wales considered the issue, and it made the following point about this clause:
“If significant private use of mobile telephones is to be taxable once again, we suggest that there should be a flat rate charge, as was the case before it was abolished from 6 April 1999. This proposal will avoid the need for complex benefit calculations resulting from the availability of a wide variety of payment plans.”
For clarification, will the Paymaster General confirm exactly how the new regime is intended to operate? Specifically, will there be a tax charge for a benefit in kind even on one employer-provided mobile phone if the private use of such a phone is deemed significant? Can we expect new guidelines to define insignificant as opposed to significant personal use? We will be given guidelines in relation to home computers, for instance, and paragraph 73 of the regulatory impact assessment implies that guidelines will apply to both.
If we are going to receive guidelines relating to mobile phones, when are they likely to be made available, given that the measure is already supposed to be in force? Who will be involved in drawing up such guidelines, and what consultation, if any, will take place? There appears to be a dichotomy, so will the Paymaster General clarify the issue for the Committee before we allow the clause to stand part of the Bill?
There is an associated point that requires clarification. It concerns BlackBerrys. They are becoming increasingly common in business—and in this place, too. I thought that in making this point, I had best declare a personal interest, if only for safety’s sake. In a post-Budget note on employer-provided mobile telephones, Deloitte and Touche called for clarification of the status of BlackBerrys, as did KPMG. In addition, in a recent tax alert note on the subject, Ernst and Young pointed out the following:
“No guidance has been given from HM Revenue and Customs to employers about how to determine whether a device’s primary purpose is a mobile phone or whether the mobile phone capability should be considered a secondary feature.”
Subsection (4) of proposed new section 319 defines a mobile telephone as “telephone apparatus”, which means,
“wireless 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.”
The key phrase is “primary purpose”. BlackBerrys usually also encompass a mobile telephone capability. However, arguably, they are not designed primarily for that purpose. Therefore, they appear to be in a grey area as they can also be used for transmitting messages such as e-mail and for obtaining information from the internet. The more modern BlackBerrys allow us to surf the world wide web.