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Mobile phone and broadband bills in directors name

Mobile phone and broadband bills in directors name - P11D and VAT

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I have a new client who has been reclaiming her personal mobile phone and home broadband bills from her limited company. The mobile phone and broadband bills are in the directors’ personal name, the director pays for them from their personal bank account and then reclaims the cost from the company. She has also reclaimed the VAT on these expenses.

As these bills are in the directors’ name would this require a P11D?  The company started trading Jan 2020, the bills that have already been reclaimed include Jan to Aug. If a P11D should be completed then Jan, Feb and Mar bills should have been on a P11D which is now late.   

Also, should the VAT element be adjusted to account for personal use? There is no clear way to breakdown the private and business use (Although the director was furloughed for 4 months, so there should have been no business use in these months). If I cannot clearly identify the business use should I reverse the VAT?

Any help would be appreciated.

Replies (14)

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By the_drookit_dug
28th Sep 2020 12:54

If she is paying the bills herself and reclaiming the cost, then the payments should go through payroll and suffer tax & NI. She can though claim any business calls over and above her standard tariff without deducting tax and NI - these would need to be supported by itemised bills. Watch out though for free minutes as they have to be pro-rata'd between business and personal etc - HMRC have a good example at https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32951. Any amount claimed for business calls is reportable on form P11D, although no tax is due.

There's no entitlement to recover the VAT.

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Replying to the_drookit_dug:
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By Paul Crowley
28th Sep 2020 13:03

Common problem
Only solution is to get bills in company name

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By cfield
05th Oct 2020 09:58

It's not just the bills that should be in the company name, the contracts must be too if she wants to treat these as tax free benefits. That might be difficult, as ISPs often tell you to terminate the contract early and start another.

Best thing you can do is debit all the reimbursements to her loan account, work out the running balance on a daily basis, calculate 2.5% interest for 2019/20 if there was a deficit exceeding £10k at any point (the normal averaging basis effectively ignores any deficits of less than 30 days) and get her to pay it immediately. It's over 2 months late but at least it shows how you meant to treat it.

I wouldn't submit a P11D at this late stage. There might be a £400 penalty. There will also be 13.8% Class 1A NI to pay, plus interest.

Going forward, I would set up a home office license agreement, agree a commercially viable rent, knock up an invoice in her name, credit her loan account, put the rent on her tax return and claim a share of all bills relating to the house based on time/space.

For phone/broadband bills, you don't need to use the time/space method. Just claim a reasonable % for business use, same as a sole trader would, against the rent. I stress that this claim is just for her personal tax return, not an expense claim to be paid by the company. Otherwise, you'll be back to square one.

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Replying to cfield:
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By Paul Crowley
05th Oct 2020 10:42

The first 2 lines are correct every time that I try to get a company compliant.Fine if it is just a one year contract, but client likely to forget if the old contract much longer.

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Replying to Paul Crowley:
By cfield
05th Oct 2020 11:26

The rest of it is correct too!

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Replying to cfield:
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By whitevanman
05th Oct 2020 12:10

Not sure I would agree.
Director pays bill's. Company re-imburses the amount paid. How do you justify then charging something to DLA?
You cannot change history. What's done is done. Make the correct returns, pay the tax etc that is properly due and sort it out going forward.

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Replying to whitevanman:
By cfield
05th Oct 2020 13:13

Of course you can. It's just the same as any other bank transfer. The fact it happens to be the same amount as the bills is neither here nor there. Only the director knows if it was meant to be a benefit-in-kind, and if she says it wasn't after being told the consequences and the alternative accounting treatment, and authorises a debit to her DLA, who are we to argue?

Let me tell you a secret. The way to be a good and helpful accountant is to steer your client through this minefield and avoid as much hassle as possible. Stick to the rules, pay the interest if the loan account was +£10k overdrawn and nobody will ever query it. It's just too far beneath the radar for anyone at HMRC to argue the toss. They don't want P11Ds now any more than we do.

What do you want to do? File a late P11D. Tell her to pay the penalty. Tell her to pay the employer NI. Put it on her tax return. Tell her to pay the extra tax. She'd really thank you for that, especially when she finds out there was no need!

People pay good money to accountants to hold their hands and take care of these little snags with as little fuss as possible. Always remember that.

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Replying to cfield:
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By whitevanman
05th Oct 2020 15:37

Sorry but you cannot change history just because it is inconvenient and you cannot advise a client on the basis of what you believe HMRC may or may not enquire into.
The OP states that the sums were re-imbursed. The answers should therefore be based on that (not what you may have advised the client if consulted at the time).
One assumes that the payments by the company were recorded in the books at the time and posted accordingly. Again you cannot change that. Also, the Director would find it extremely difficult to explain why (s)he decided to re-imburse these identical amounts and why the changes you propose were done long after the event (no doubt with the benefit of hindsight). Clearly they do not reflect what was decided AT THE TIME the payments were made.
It is no part of an accountants job to seek to re-write history or to "make it up" simply to save a client some money. If the client doesn't take and pay for, advice at the correct time, that is a lesson learned.

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Replying to whitevanman:
By cfield
05th Oct 2020 16:25

whitevanman wrote:

Sorry but you cannot change history.

But who is to say what history was? You've taken one view of the facts, I've taken another. Barristers do the same in court every day.

whitevanman wrote:

The OP states that the sums were re-imbursed.

Maybe the OP got it wrong. Maybe the client was just taking a loan from her company to cover the cost of the bills, or maybe she only took the money on the understanding they were tax free expenses with the intention of treating it as a loan if they weren't. As I keep telling my clients, taking the cash is not the same as voting yourself salary or dividend. The 2 operations are separate and distinct.
Unless she signed an expense claim, which she probably didn't, there is no formal evidence that the cash transfers were taxable.

whitevanman wrote:

One assumes that the payments by the company were recorded in the books at the time and posted accordingly.

Why on earth would you think that? In my experience, nothing gets posted in the accounts until the accountant gets involved. Don't assume anything. You need to tell this One that he is making an ass[***] out of u and me.

whitevanman wrote:

It is no part of an accountants job to seek to re-write history or to "make it up" simply to save a client some money.

You keep banging on about history. It's just an interpretation of the facts. As for making it up, every bad debt provision, every depreciation rate, every claim for use of home as office, is an exercise in evaluating the facts and putting a value on them. You say "simply save a client money" as if this is some tawdry thing. My good (white van) man, that's what it's all about, saving the client money. They don't pay us expensive fees to cost them money. Well, maybe yours do, but I bet they don't know about it....yet!

whitevanman wrote:

If the client doesn't take and pay for, advice at the correct time, that is a lesson learned.

Well, that's told them hasn't it? Serves them right! Me, I tend to take a less harsh view of people. I got into public practice to help people, not to preach at them and make them pay for every mistake. When you work in the City for 20 years for bosses who are totally unappreciative of your efforts, it is hugely rewarding to help people who are truly grateful for your advice and for going the extra mile.

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Replying to cfield:
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By whitevanman
05th Oct 2020 18:04

You are not taking a view of the facts as presented by the OP. You are changing them to suit your purpose. You even suggest the OP might have it wrong. Whilst I don't disagree that the OP could be mistaken, that is true of every post and every "fact" given. It is not the role of those replying to a post to suggest what the facts might be in order to produce (what in our ignorance we might assume to be) the best outcome.
The OP gives the facts and asks the question. We should respond based on those facts. After all, the OP and the client may not be as comfortable as you seem to be with changing the "facts" after the event.

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Replying to whitevanman:
By cfield
05th Oct 2020 19:16

Well, as I said, facts are not always as cut and dried as we sometimes like to think. Clients say all sorts of things that sometimes turn out to be wrong, such as paying themselves salary when they haven't even got a PAYE scheme or dividends when there isn't a board minute. The OP got his response to the "facts" presented. P11D and penalties. Now he also knows what the situation would be if the "facts" were in fact slightly different.

Is there a "role" we have to stick to for answering questions like that? We're not giving evidence in court. No scary barrister is going to shoot us down in flames for daring to venture an opinion instead of sticking rigidly to his question. Clients often say that they are in our hands as they are relying on our expert knowledge. What they mean is that they need us to ask them the right questions as they are completely in the dark and don't know themselves. I would suggest that this is a case in point.

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By pmt1pff
05th Oct 2020 10:39

it is possible for home broadband to be paid 'tax free' but in quite limited circumstances i believe. more likely than not it will be a benefit so yes you would have a p11d issue here. this doesnt depend on whos name the bill is in - even if the company paid it direct, would still be a taxable benefit for the individual if its for her personal residence.
likewise personal mobile phones - if there is only business use (or a tiny amount of personal use) then the cost can be repaid 'tax free', otherwise a personal phone will always give rise to a taxable benefit. rationale being that the company is effectively buying her a phone. if phone in company name then she can have one such phone tax free. if contract in her name then doesnt matter who pays, it will be a taxable benefit if there is personal use.
remember there is the £6 a week 'allowance' for home working though. might just cover the broadband cost.

you could always payroll both of the above to avoid having to produce p11ds, but too late for the 2020/21 tax year now - would be april 2021 onwards.

not sure why vat recovery would be blocked? presumably both of the above are genuinely needed for business reasons. i would think you could recover vat in full on both but happy to be corrected by someone with more in depth knowledge.

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By Calculatorboy
07th Oct 2020 17:00

Quick fix
Yep if you try to change account to company name provider will insist on new contract..
Try just editing billing address, use field for House name and enter company name instead "XYZ LTD"
Bill is now addressed to director at company

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Replying to Calculatorboy:
By cfield
07th Oct 2020 17:20

If push comes to shove, would HMRC wear that?

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