Allowable expenses - Telephony and Broadband
Updated: Jan 20, 2021
This is the second in a series of circulars, looking to address commonly asked questions or topical issues. Today we have a look at the treatment of your business’ Telephony and Broadband costs.
TELEPHONY AND BROADBAND
Originally published 31th August 2018
This is an area of company expenditure which can often be misconstrued by business owners and should be understood in order to avoid unwanted attention from tax authorities.
The mobile for instance has become an essential tool for managing both business and personal life in a multitude of ways. But when business and personal use is so intertwined, how do you account for these mixed up expenses?
First lets deal with unincorporated businesses such as sole traders. Thankfully, for tax purposes because the business and the individual are one and the same, include all phone and broadband costs in your accounts then discount for personal use. Make sure you use a reasonable method of calculation and review annually.
Next, lets take a look at limited companies.
Personal phone and broadband contracts.
If you have a mobile phone taken out in your name either on a pay as you go basis, or a contract that does not include free calls, then work related calls can be recharged to the business, provided an itemised bill is available which will correspond to the amount recharged. You can also reclaim the VAT if registered.
Most people nowadays have personal phone contracts that include ‘minutes’, making the expense for work related calls difficult to quantify. Some business owners are tempted to recharge a percentage of the cost of the overall contract, based on an approximation of the portion of time spent on the phone for business purposes. HMRC however consider there to be no ‘marginal cost’ of the business use since the individual would have incurred the expense of the contract anyway. Therefore any such withdrawal from the business will be treated as salary and taxed accordingly.
Similarly, itemising business related broadband costs is extremely difficult therefore any withdrawals relating to these expenses would be treated as salary also.
Company phone and broadband costs
Tax rules are much more favourable where a contract is taken out by the company itself.
In the case of mobile phones, HMRC accept that no tax or NI applies, either from the Company or the Individual’s perspective, where 1) only one mobile phone/SIM is provided per employee, 2) the phone contract is between company and the supplier, 3) there is no more than reasonable personal use, and 4) the contract is paid from the company bank account. In this case, the whole of the contract can be offset against taxable income. A second mobile phone would be deemed a benefit in kind (BIK) and taxed as such.
Similarly, landline and broadband costs can be entirely deductible provided they satisfy conditions 2, 3 and 4 above.
Clearly, having telephony and broadband contracts in the company name can have material tax benefits and in most cases this would be my recommendation. However, businesses should be mindful that suppliers sometimes offer less appealing tariffs to businesses compared to individuals, therefore this additional cost should be assessed against any tax saving.
Any questions on the application of telephony and broadband rules please let me know.This is the first of a series of circulars which I’ll send out, looking to address commonly asked questions or topical issues.