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ANY ANSWERS: Is broadband allowable? By Nichola Ross Martin

9th Jun 2006
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This is quite a straightforward question, on the face of it - is broadband allowable as an expense of self-employment? But as we are talking tax and we are all accountants, there are bound to be complications'

The question was posed by Nicola Dobson. This article explores the possibilities of allowing deductions for broadband charges against profits.

Incidentally, for employees, providing the employer foots the bill, s.316 ITEPA 2003 will allow a deduction for broadband in an employee's home, for work purposes, providing private use is not significant. If the employer does not bear the cost, an employee will have the onerous task of trying to persuade HMRC that it is wholly, necessarily and exclusively incurred.

For the self-employed it gets more complicated because although broadband is for high speed internet connection, packages often include line rental and calls.

The rules for deductions for the self-employed are, in a nutshell, that the expense must be:

  • Wholly and exclusively incurred for the purpose of the business, and;
  • Any private use/enjoyment is incidental or not the primary purpose of the expenditure, and;
  • Is not capital.
  • The rule of thumb for the cost of telephone used for business and private purposes is that line and equipment rental are deemed as private and you apportion the calls for tax purposes. The problem with broadband is that there are numerous different packages. For instance, you can pay broadband fees to the company that does your web hosting, line rental to another company and call charges to yet another company. It is rather dangerous to try and say that one rule will fit all.

    Private benefit and broadband
    There will always be a private benefit, incidental or otherwise in having broadband if you are a home pc user. As far as just telephony goes, I doubt that many users will say that broadband is any different from a normal telephone line.

    Just because there may be duality of purpose though, does not automatically mean that part of the cost will not be allowed, however, there are certain items that HMRC say have an intrinsic duality of purposes, so in practice there are grey areas.

    A pragmatic approach
    One of the respondents (James Smith) has quite a pragmatic approach; in his own words: 'I tend to approach this situation as follows: For a sole trader working from home, if the client ALREADY had broadband before the business commenced I don't allow anything on the basis of incremental cost being zero along the guidelines of home phone costs where existing line rental is generally disallowed. If the client got broadband specifically for the purpose of their business I allow 100% on the basis private usage is free.

    I can't say it's foolproof but I have discussed this on inspection and the inspector didn't have any problem with my methodology ' obviously different inspectors would have different ideas."

    That on the face of it sounds very sensible, but it does mean that in time, when every home in the land has broadband, there will never again be a deduction! It does also infer that Broadband is the same as line rental, which is not always the cases. He does not mention what happens when a client's broadband is run otherwise than by BT, as they presumably still charge for line rental, and calls are seldom included in broadband packages

    Which course to take?
    I suggest that the first course of action is to look at the motive behind setting up or accepting an already set up broadband connection (if one has moved house), and to examine what exactly is included in the monthly charge.

    If broadband is essential, only because you are a family of home pc users, then the cost is obviously of intrinsic duality and just as choice of clothing is personally motivated and clothing costs are disallowed, so too should the broadband rental.

    Conversely, if there is little or no home pc use, but you use the telephone for social and domestic purposes, apportion the call expenses in relation to % of usage, the line rental as private and the broadband charges are business.

    When there is no breakdown of between broadband connection, line rental and calls, then you can either try and split the elements down in proportion to those charged by other providers who do split their bills, or else make a just and reasonable apportionment by virtue of actual usage. Here, I say again, this is one area, where one rule does not fit all.

    Nichola Ross Martin

    Replies (11)

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    By User deleted
    10th Jun 2006 08:47

    '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.

    Thanks (0)
    By deanshepherd
    09th Jun 2006 18:06

    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.

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    By AnonymousUser
    09th Jun 2006 19:14

    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.

    Thanks (0)
    By User deleted
    09th Jun 2006 12:18

    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).


    Thanks (0)
    By AnonymousUser
    09th Jun 2006 14:17

    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

    Thanks (0)
    By User deleted
    09th Jun 2006 14:54

    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?

    Thanks (0)
    By AnonymousUser
    09th Jun 2006 11:54

    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.

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    By andymeeson
    09th Jun 2006 11:26

    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...

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    By Peter.btconnect
    09th Jun 2006 11:35

    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'

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    By bigchris
    09th Jun 2006 12:02

    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?

    Thanks (0)
    By Taxi
    09th Jun 2006 11:55

    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!

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