Virtually every business in the UK needs broadband access to function these days.
Whether you work from an office or your home, the cost of internet access is one of the most commonly claimed business expenses for limited companies.
If your company claims for the cost of broadband access, you need to make sure that it is an allowable tax-deductible cost.
For an expense to be allowable, you need to demonstrate that the service or product is used wholly and exclusively in the course of your trade. In other words, it is only used for business purposes.
It all depends on how your broadband contract is set up, and if there is a mixture of personal and business use.
Broadband contract in the company’s name
- It is simple to offset broadband expenses against Corporation Tax if you have a business broadband contract in your company’s name. This applies whether the broadband account is set up at your home address or your office.
- If you do operate a business broadband contract from home, HMRC accepts there is likely to be some personal use as well. This could, in theory, be considered a Benefit in Kind (BIK), although it’s unlikely.
Business use of residential broadband
- If you have a residential broadband contract, you can’t offset any of the cost as business expenses unless you can clearly show where usage is exclusively and wholly for business.
- Under HMRC ‘duality of purpose’ rules, it is hard to prove there is an additional cost to the fee you are already paying anyway, so if you make a claim, a benefit in kind charge applies (see below).
No existing broadband service at home
- Although unlikely, if an employee or director doesn’t have a broadband service at home, but requires internet access for working from home, the cost of installing a new broadband service is an allowable expense.
- This is allowable as it represents an additional household cost.
If your company pays for your residential broadband costs, both the company and the individual pay extra tax on the value of the benefit. The company pays Class 1 Employers’ NICs and the employee pays additional income tax.
By far the most straightforward solution is to set up a broadband contract in your limited company’s name.
For HMRC’s technical guidance on the tax treatment of broadband, see EIM01475
Read our complete guide to business expenses here.
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