Business vs personal mobile contracts: which is cheaper?

The short answer

It depends on who is paying and whether you are VAT registered. A business contract tends to be better value when:

• Your business is VAT registered and the phone is used for business, so you can reclaim VAT
• You have more than one or two lines and want them managed on one account
• You want the number to belong to the business, not to an employee
• You need business features such as spend caps, account tools and device management

A personal contract may suit a sole trader who is not VAT registered, uses one phone mostly for personal calls and does not need business account features. The rest of this page explains why.

Why business mobile prices can look higher

Business mobile prices are usually shown excluding VAT: the networks' business ranges label their prices ex VAT, and Three Business, for example, states that all its charges exclude VAT. Personal prices are shown including VAT. Comparing a business price with a personal price without adjusting for VAT gives a misleading picture in either direction.

Business plans are also built for a different job. They often include, or offer as options, things a personal plan does not: multi-line accounts with administrator controls, business spend caps, bill analytics, device management services and business support teams. Some of those features are included and some are paid options, so compare what each plan includes as well as the headline price.

VAT: what you can reclaim

According to HMRC guidance on gov.uk, a VAT-registered business can reclaim VAT on items bought for use in the business through its VAT return. If something is also used privately, you can only reclaim the business proportion. gov.uk's own example is a mobile phone: if half your calls are personal, you can reclaim 50% of the VAT on the purchase price and the service plan.

A few points to note:

• You need valid VAT invoices and records showing how you worked out the business proportion
• Businesses on the VAT Flat Rate Scheme cannot reclaim VAT on purchases, apart from certain capital assets
• Organisations not registered for VAT, such as some charities and public bodies, follow different rules

Business mobile bills come in the business name, which makes the VAT invoice straightforward. This is general information, not tax advice; check your own position with your accountant.

Tax and benefit in kind

For income tax and Corporation Tax, gov.uk lists phone bills among the allowable expenses for the self-employed, and limited companies deduct their running costs before Corporation Tax. How you provide phones to employees matters too. HMRC says there is nothing to report and no tax or National Insurance to pay when an employer provides only one mobile phone or SIM card per employee and the contract is between the employer and the supplier. It is different if the employee holds the contract and the employer pays the bill: that must be reported on a P11D with Class 1 National Insurance paid.

This is a good reason for company phones to sit on a business account in the business's name. Our guide are company mobile phones a benefit in kind? explains the rules in more detail. This is not tax advice; ask your accountant how the rules apply to you.

What a business account adds

Beyond cost, a business account changes how you run your phones:

The number belonging to the business matters more than people expect: when someone leaves, the number stays with you and can be passed to their replacement.

Common misconceptions

A few ideas about business mobile contracts come up often and are worth clearing up:

• "Business contracts are only for limited companies": sole traders and partnerships can open business accounts too
• "The business price is higher, so it costs more": business prices are usually shown excluding VAT, so compare like with like
• "I can reclaim all the VAT whatever happens": only the business proportion is reclaimable where there is personal use, and Flat Rate Scheme users generally cannot reclaim VAT on purchases
• "Paying an employee's own phone bill is the same as giving them a company phone": HMRC treats these differently, as the tax section above explains
• "A business account means a long contract": terms vary by network and plan, and we confirm them at quote

When a personal contract can make sense

A business account is not the right answer for everyone. A personal contract may be simpler if you are a sole trader who is not VAT registered, use one phone mainly for personal calls, and do not need administrator controls, multiple lines or business spend caps. In that case, gov.uk's guidance on allowable expenses still applies to the business part of your phone bills, so keep records.

The picture changes once you employ people. If staff use phones for work, putting them on a business account in the business's name keeps the numbers with the business, keeps the tax position simple under HMRC's one-phone exemption, and gives you control when someone leaves. If you would rather staff use their own phones, read about the security side in our company mobile phone policy guide.

How to work out which is cheaper for you

To compare fairly:

1. Put every price on the same basis, either including or excluding VAT.
2. If you are VAT registered, take off the VAT you could reclaim on the business proportion.
3. Add any costs a personal contract would push elsewhere, such as reporting and National Insurance if the business pays an employee's own contract.
4. Compare whole-term cost rather than the monthly price alone, and price phones separately so you can see what the airtime really costs.
5. Weigh the account features you need, such as spend caps, administrator controls and device management.

We can set out quotes on more than one network so the comparison is like for like. Our business mobile phone plans and business mobile phone contracts guides explain the options, and our sister site also covers business SIM only plans. Ask us for a quote; contact us with your current bills and we will help you compare.