Contractors' Questions: Is a broadband upgrade a claimable expense?

Contractor’s Question: Since running my contractor business from home, I claim through my limited company the additional cost of having ‘Anytime’ calls. I have recently needed to upgrade from copper broadband to fibre and would like to check if just the difference between these could also be put through my PSC?

Expert’s Answer: Generally-speaking, your expenses as a contractor are allowable if they are ‘wholly and exclusively’ for business.

In particular, under section 336 of ITEPA 2003, the general rule is that a deduction from earning is allowed for an amount if:

(a) the employee is obliged to incur and pay it as holder of the employment, and

(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

In your case, any additional cost because of working from home satisfies the above conditions because if you were not working from home the cost wouldn’t have been necessary in the first place. So, the reimbursement by the company to you is an allowable deduction.

The legislation further allows an employer (your PSC, for example) to pay up to £4 per week, £18 per month, without any supporting evidence of the costs. If the employer reimburses more, then supporting evidence needs to be provided to show that the payment is wholly in respect of additional household expense incurred by the employee in carrying out the duties at home.

The challenge here is to provide supporting evidence that the upgrade was wholly, exclusively and necessary for the performance of employment duties. If performance of your job relies heavily on the use of internet, then it is easy to justify the upgrade and can be claimed through the company, as it increases efficiency. But if you are involved in job where the use of internet is minimal, such as checking and replying to emails; it will be hard to argue that the upgrade was for business.

Similarly, the cost for ‘Anytime’ calls that you have been claiming will become a chargeable expense if it is not exclusively for business. Unlike broadband, usually it’s easy to identify the calls made for business and personal use; and only the proportion used for business is a claimable expense.

In order to keep things simple, it is advisable to have the broadband and telephone contracts in the PSC’s name as with under such an arrangement, HMRC accepts and allows some personal use.

The expert was Sumit Agarwal, managing director of contractor accountants DNS Associates.

Tuesday 19th Sep 2017