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?
Telephony expenses – the basics
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 own company 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
- If your mobile or landline phone contract is in your company’s name, and any token personal use is ‘reasonable’, this is an allowable company expense, and you won’t be taxed further personally.
- If your company pays your entire personal phone bills, you will have to pay a benefit-in-kind (BIK) charge on the total amount of the bill, and your company will pay Class 1 NICs at 13.8% on the same amount (minus the cost of any business calls you can identify).
- If you make a claim for the business-only calls made on your personal mobile or landline phone bill, this is a legitimate expense. You can also reclaim the VAT element of the business calls, but you won’t be able to reclaim any part of the line rental, as you would incur this cost anyway.
- However, it is increasingly difficult to separate the cost of business calls, given the way mobile (and many landline) phone operators package call costs (e.g. ‘up to 2,000 free monthly minutes’).
- If you can’t separate the business element of your personal mobile phone usage, you cannot make a claim, due to the duality of purpose rules, as any business calls you make incur no extra cost on top of the tariff you already pay for personal calls.
See HMRC EIM32945 and EIM32940 (below) for further details.
- 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 telephony 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.