A broadband internet connection could take the following forms:-
1. Wireless Mobile Connection ( dongle )
2. Fixed Wire Broadband ( Telephone Line )
The considerations are the same for both types of supply and over the years as the types of supply have changed so has the way HMRC view the tax deductibility of these items.
If the expense of the broadband is bundled with a mobile phone account the treatment of this expense should be considered with the other services supplied in the mobile phone account, which will depend in whose name the contract is.
For both Fixed Wire (ADSL/DSL) or Wireless Internet ( Dongle ); if the contract and the invoice is addresses to the company, such as Mr J Smith, J Smith Consulting Ltd, 1 The Street,Streetsville, SV2 1LA then this expense is an expense for the company and should be paid for from the company bank account.
This expense will fall within the wholly and necessarily test and be tax deductible on the company's profits.
Where the company pays for the connection and the employee uses the Internet solely for business use or it is provided soley for the employee director to perform their duties then there will be no tax charge on any personal benefit received by the employee or director, but in this case it is important the personal use is not significant.
For more details see EIM21611
If the invoice is addressed to the director or employee of the company then it is a reimbursed expense.
In this case if the broadband internet connection is used exclusively for business purposes, it would be reasonable for the cost of the broadband to be reimbursed to the employee or director and so the expense should be tax deductible by the company, and non taxable to the employee or director when reimbursed.
If there is personal use of the wireless broadband connection then HMRC will not allow the reimbursement of the expense as a non taxable item to the director or employee, see SE32940.
Where there is not a significant personal use of the Internet Connection then 100% of the cost can be a deductible business expense and HMRC give guidance at EIM21617 its important to note that it is up to HMRC to accept that there is insignificant personal use and that the employee/director would be able to substantiate the claim.
There is one distinction for Fixed Wire Broadband, if the employee already has Fixed Line Broadband before commencing the work, then the company cannot reimburse the cost of the fixed wire internet connection and deduct the cost against its profits.
The reason for this is that HMRC ( EIM01475 ) consider that reimbursement should be for the extra cost incurred by the employee when undertaking the work for the company, if the employee had broadband at home before, then no extra cost has been incurred.
Where the employee was one a lower tariff broadband, and then due to the new employment as a director of the company they required a higher tariff, then the difference in the two tariffs would be tax deductible on the company and a reimbursed expense for the employee/director.
If the company does not have a dispensation covering broadband internet reimbursement then a P11d will need to be submitted by the company for each director/employee to whom reimbursement has been made, and for business related reimbursement a S336 claim will be applied for at the same time resulting in no tax liability for the director or employee.
Some examples:-
1. Director has Fixed Line Broadband at home that is available for all the family ( not tax deductible -should not be reimbursed by the company ) and a wireless dongle that the director uses for work purposes both at home and when travelling ( tax deductible ).
2. Director has two Fixed Line Broadband connections at home, one for work ( tax deductible ) and one for the family ( not tax deductible and not to be reimbursed by the company).
3. Director has one Fixed Line Broadband connection at home and does not allow the family access to it at all. ( Tax deductible but family very upset ).