You might also be interested in
Replies (11)
Please login or register to join the discussion.
'All Local Calls Are Free' Broadband Packages
Working from home on a non-business broadband tarrif does bring about significant, sometimes incidental, call savings. You have to choose your package carefully. For instance all 01 and 02 local calls free for example which could be beneficial to a new business.
Run properly there is no cost with a broadband connection operating from a home business of any significance. It should generate much more income than it costs.
The problem is when it is being claimed in businesses with no significant reliance on the telephone. Again, this is where our friends at the tax office need to get up to speed. Hee! Hee! Such businesses nowadays are few and far between. Not many would be in business isolated from the telephone and then there is all the convenience shopping on the internet for business supplies. Delivered straight to your door and receipted by email.
Common sense says yes it is allowable. However this wholly & exclusive test and necessarilly for employees is another thing. Deliberately vague as it is, it gives the tax inspector a [***] of light. The whole point. Tell Syd that.
I'm with Daren, but not Angela..
In the case of cars there is a reasonable basis for apportionment i.e. mileage. You can, and indeed should, keep a definate record of the business and private use proportions.
In the case of broadband internet use there is no reasonable basis of apportionment that I am aware of. Certainly not one that is practical for clients to use.
Therefore I agree with Tony Courts comments for the strict answer.
In practice, of course, the allowability of certain expenses can often come down to negotiation which is why I usually adopt a more equitable appraoch.
Council Tax?
Daren - are you sure about claiming a proportion of Council Tax for s/e? My understanding is that Council Tax is a domestic charge, and has no relevance whatsoever to business use. If a business is being carried on from home then, strictly, should business rates not apply to that proportion? I would be interested to hear other views on this as I have heard numerous arguments for and against - I just wonder what the up to date position is.
Is it really difficult ?
I actually think it is one of the less difficult items of expenditure that needs to be considered.
If you first put out of your mind the matter of what is "fair and equitable" and then consider the facts in conjunction with the law (statute, precedent and dicta) it should not be difficult.
If you know how the broadband was used just apply the test, in most cases it is likely that there will be personal use and the subscription is not based on usage but just a flat fee then the wholly and exclusively test is failed. no deduction despite appearing unfair.
On the other hand if the cost of broadband is per usage then the cost is apportionable business to non business - allowable to non allowable (how one goes about apportioning this is the same problem we face with telephone usage etc).
If for example the only non business use is that when the client downloads his business emails he also receives as a consequence rather than by design his private emails at the same time that is likely to be incidental use and would not preclude full deduction, it is something that happens. The sending of private emails however using the same broadband service would not be incidental, it may be minor but not incidental.
In practice I effectively ignore what I have said and adopt a fair and equitable approach to apportioning broadband costs, I have had a a few tax enquiries which included this issue and have not found Inspectors to be concerned about this approach.
I do not think marginal cost is a good basis for measuring the allowable element, it may prove the only method of apportionment in some circumstances, but really is it simply a matter of, all, nothing or an apportionment (if capable of being apportioned).
TC
Why not apportion costs between personal and business?
The Inspectors manuals state that "where an expense is such that a definite part or proportion of it is wholly and exclusively laid out or expended for the purposes of a trade....that part or proportion should not be disallowed on the ground that the expense is not as a whole so laid out or expended. Examples of expenses part of which may be regarded as allowable are the running costs ... of a car used partly for business and partly for private purposes and the cost of rates, lighting and heating of premises used partly as business and partly as private accommodation."
On the basis of this guidance I have always taken the proportionate approach with such items as landline and mobile telephone and Broadband costs for unincorporated businesses and see no problem with continuing to do so. I can see no difference between the standing and usage charges for utility bills and general telephone costs nor between car Vehicle Excise Licence (an annual fee) and Broadband line rental costs (a monthly fee).
The relevant manual reference is:
BIM42130 - Deductions: Scope of: Apportionment of expense
Must be an identifiable business part or proportion see http://www.hmrc.gov.uk/manuals/bimmanual/BIM42130.htm
Broadband, certainly a must for SaaS
Anyone using a SaaS application like our Online Office Products could show the business use right away, since he/she could not do even the accounting without broadband. Is that correct?
Broadband
This can create a greater problem if the TV is also included.
In our area, cable TV came first, with, if you have the correct package, free line rental and local calls.
Then Broadband was added to the package at a minimal charge, if you already had a large TV package. BT was not available.
With the cost of the TV being over 98% of the package, if a line is used for business purposes only along with the broadband, most of the bill would be disallowed.
It is highly unlikely that the provider is really giving these items away at a minimal cost. All these items are included in the rental.
Good summary
Apart from an embarassing typo:
"The rules for deductions for the self-employed are, in a nutshell, that the expense must be:
Wholly and necessarily incurred for the purpose of the business, and ...
You meant, of course, to say "exclusively".
Dormitat et Homerus...
article on broadband and tax deduction
Is it not the case that for self employed the test is wholly and exclusive and not as the article staes 'wholly and necessary'
Private use paid for separately
Will HMRC not accept the self-employed individual paying out of his/her own pocket a percentage of the invoiced cost, calculated upon the proportion of private usage, leaving the remainder allowable?
Typo corrected! Although that did not necessarily qualify as a
Well spotted, and so very nice to see that that you took the time to read the article!