They are two of the most common business-related costs, but how are broadband and phone expenses treated by HMRC, and how can you make sure they remain tax-deductible as a legitimate business cost and not be added to your personal tax bill at the end of the financial year?
This is far less likely to be an issue for an office or commercial premises where broadband and phones are mainly for business purposes. For contractors, freelancers and limited company owners, however, and especially those who work from home, this can be a bit of a grey area as it can be harder to draw a distinct line between personal and business use.
As a general rule, only those expenses incurred in the course of trading or providing your professional services can be considered legitimate business costs. The point to note here is that you must be able to clearly demonstrate business use before you can reclaim costs. For that reason, it makes life a lot simpler if wherever possible, phone and broadband contracts are in the registered company’s name.
The rules covering broadband expenses
- Offsetting the cost of broadband against Corporation Tax is straightforward if you have a business broadband contract. This applies whether the broadband account is set up at your home address or at 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 as a Benefit in Kind (BIK), although it’s unlikely.
- If you have a residential broadband contract, you won’t be able to offset any of the cost as business expenses unless you can clearly show where usage is exclusively and wholly for business.
- If you start operating as a business on an existing residential broadband contract, 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 no reclaim is allowed.
- If you have to buy new equipment, upgrade your residential broadband service, or install a new internet connection for business reasons, however, these are all legitimate costs that can be offset against corporation tax.
Landline and mobile phones
- If you have a landline phone and/or mobile phone contract in your registered company’s name, usage is treated as legitimate business expenses and can be offset against corporation tax. HMRC also accepts that a number of calls will be personal.
- If the company pays for all your mobile phone calls, this is treated as a benefit in kind and you’ll be taxed accordingly. The company will also have to pay Class1 National Insurance Contributions (13.8% from November 2022 onwards) on the total phone bill. A deduction is possible on this sum where it’s possible to clearly identify business only calls.
- You can claim for business calls made from your personal mobile or home landline phone as legitimate business expenses, including the VAT element of such calls, but only if you can clearly separate business and personal usage of your mobile or landline phone. Depending on the volume of calls you make, it may not be worth the effort of trying to separate the two.
- Under ‘duality of purpose’ rules, you won’t be able to claim for the line rental on a personal landline account as you’d incur this cost anyway.
For further guidance on broadband and phone claims, check out the following manuals from HMRC.
- For broadband expenses, see: EIM01475.
- For landline telephone charges and landline rental, see: EIM32940.
- For mobile phone charges, see: EIM32945.
Read our complete guide to business expenses here.