While working as a contractor, you may run up a number of business-related phone and broadband expenses. So, how do you ensure that these expenses remain tax-deductible for your company and free of additional personal tax charges at year-end?
Phone, mobile and broadband expenses – the golden rules
Two golden rules govern the tax treatment of broadband and telephone expenses, as they do to business expenses in general.
- Firstly, any business expenses must be wholly and exclusively incurred in the course of your trade, and;
- Secondly, where there is a duality of purpose, i.e. you would have incurred the cost personally regardless of any business use, then you will pay extra tax if you charge these expenses to your business.
Ultimately, the simplest, and most tax-efficient way to claim phone and broadband costs is to ensure that the contracts are in your limited company’s name.
This guide is aimed mainly at limited company owners. If you’re an umbrella contractor, ask your scheme provider how telephony expenses are treated, as policies vary between PAYE schemes.
Landline and Mobile Phone Expenses
- The cost of phone contract payments – both landline and mobile – can usually be offset against your limited company’s Corporation Tax bill, as long as the contract is in the company’s name, and any personal use is deemed ‘reasonable’.
- HMRC specifically allows for the provision of one mobile phone per director or employee without any benefit in kind (BiK) implications. See EIM20006 for clarification. The phone itself remains an asset of the company.
- If your phone contract is in your own (individual) name, and your company pays the bills, then both the company and you (personally) will be taxed on the benefit. The company pays Class 1 National Insurance Contributions on the value of the benefit (currently 13.8%). And the individual will also face a BiK (Benefit in Kind) charge on the value of the benefit.
- In theory, if you’re able to do so, you can make a claim for the cost of any business-only calls made from a residential phone or mobile, including the VAT element. However, you can’t claim for any line rental or similar charges, as there is a ‘duality of purpose’ – you would have incurred these costs regardless.
- These days, with most landline and mobile contracts offering bundled or unlimited call time, contractors are less likely to reclaim the cost of individual calls.
- If you’re unable to split out the cost of business usage from a personal phone bill, there is no point in making a claim.
See HMRC EIM32945 and EIM32940 (below) for further details.
What about Smart devices?
The ubiquity of smart devices these days has thrown up further questions when it comes to what you can and what you can’t offset against your company’s Corporation Tax bill.
In general, common sense applies: if your smartphone contract is in the company’s name, then this is typically an allowable business expense. Claims for other smart devices, such as watches, are much harder to justify.
- If you set up a new broadband contract at home (or in your office) in your limited company’s name, this is an allowable business expense, and not subject to a BIK charge. HMRC accepts that there may be some personal use.
- If you start to carry out some of your work from home, using your residential broadband, you cannot make a claim if the broadband was already in place beforehand, unless you can clearly split the business from the personal element.
- If you have no broadband contract at home and need internet access to carry out your trade, the costs can be reclaimed from your company, and no BIK charge arises.
See HMRC EIM01475 (below) for further details.
Refer to the following HMRC manuals for technical data relating to the tax treatment of mobile, phone and broadband expenses.
- EIM32945 – Mobile phone charges.
- EIM32940 – Telephone charges. Why line rental can’t be reclaimed on a phone used for both business and personal use.
- EIM01475 – Broadband expenses – reclaiming the cost of home broadband.
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