Most directors already have broadband at home before setting up a limited company.
Unlike mobile phones, there isn’t a specific HMRC tax exemption that allows a company to simply pay a director’s existing home broadband bill.
Whether the company can claim the cost depends on why the broadband was installed in the first place and who is responsible for paying for it.
If the connection was originally taken out for personal use, the monthly cost will usually remain a personal household expense.
However, if a new connection is installed specifically for the business, or the company pays for a separate business broadband line, the cost can often be claimed as a legitimate business expense.
Existing home broadband
Where the connection was already in place for personal use, the monthly subscription remains a private expense. The fact that you now use it for work doesn’t normally alter its tax treatment.
As a result, the company wouldn’t usually pay the monthly broadband bill directly.
HMRC guidance confirms that where a broadband connection was already available, there is no additional household expense for the company to reimburse tax-free (see EIM01475).
Broadband installed for the business
If you set up a new broadband connection specifically for the business, the company can usually claim the cost as a business expense.
This might be a separate connection installed at a home office, or broadband provided at commercial premises such as an office or workshop. Either way, the monthly costs will normally qualify as an allowable business expense.
As with many other types of expense, the new installation should be set up if it’s needed for work – with any private usage remaining incidental and insignificant.
The contract should be in the company’s name, and the company should pay the bills directly from its bank account.
What if you upgrade your broadband?
If you regularly transfer large files, rely on cloud services or spend much of the day on video calls, you might need to upgrade your current home broadband package.
In theory, if you’re upgrading your home broadband service because your business needs a faster service, it might be possible for the company to meet the additional cost.
However, only the increase in the monthly cost would normally qualify.
In practice, the tax saving may be relatively small, particularly given the speeds now available on many standard broadband packages.
If you do claim the additional cost, keep evidence of why the upgrade was needed and how the amount claimed was calculated.
Separate business broadband
Some businesses choose to install a separate broadband connection rather than relying on an existing household service.
This is often the simplest option where a director works from home full-time, or the company needs a dedicated connection for security, reliability or operational reasons.
As the connection exists solely for the business, the company can normally meet both the installation costs and the ongoing monthly charges.
Broadband at business premises
Broadband provided at offices, shops, workshops and other commercial premises is normally treated as part of the company’s running costs.
The cost forms part of the company’s normal running expenses and will usually qualify for tax relief. The same applies to leased lines and other commercial internet services used by the business.
Keep accurate records
Keep copies of broadband contracts, invoices and any other records supporting the company’s claim.
Where the company reimburses additional costs, retain evidence showing how those costs were calculated and why they relate to business rather than private use.
Keep these records with the rest of your company’s accounting records.
Need more advice? Get in touch.
Broadband is just one of the many expenses a limited company is likely to incur each year.
If you’re unsure what’s an allowable expense, or would like advice on running your company as tax-efficiently as possible, we’re here to help.
Click here to get in touch with the Integro team.
You can also read our complete guide to limited company expenses.
