Contractors’ Questions: Is an Apple One Premier Subscription an allowable company expense?

Contractor’s Question: Would it be acceptable to put an Apple One Premier Subscription for £29.95 per month, through my limited company?

The subscription is for 2TB iCloud storage -- for all company backups, as this includes 5 users/machines.

However, included in the package you have music, tv, fitness and news.

The reason for me preferring Apple One subscription over just iCloud storage is the ability to cover up to 5 devices as one package. Would this be an allowable company expense? 

Expert’s Answer: There are two elements of taxation to consider here – the company and then the director’s personal tax.

If the company agrees...

As regards the company, an expense will deductible for corporation tax purposes if it is incurred ‘wholly and exclusively’ for the purposes of the trade. The subscription in question, appears, on the face of it, to be only partly for business.  However, if the company agrees with the director, to allow him as part of his remuneration package to have use of the package, then the whole of the subscription becomes tax deductible for corporation tax purposes.

Next, we need to look at whether allowing the director to use the subscription service is a taxable benefit.

Well, in fact, it quite clearly is a benefit, provided due to his employment as a director of the company, and so is a taxable benefit.

What the law says

The remaining question is “What is the value of that benefit?”. The relevant legislation states:

Cost of the benefit: basic rule

The cost of an employment-related benefit is the expense incurred in or in connection with provision of the benefit (including a proper proportion of any expense relating partly to provision of the benefit and partly to other matters).

The wording suggests that you would need to properly apportion the subscription cost between the part of the subscription that is a benefit and the part which isn’t. 

How to treat the benefit/non-benefit part

But how should you go about that? It seems that there is a subscription available that covers only the storage and, for an additional amount, the music, TV and the other extras can be added, as well as the ability to use it on five devices. The additional amount must be the cost of adding the ‘extras’. If it weren’t for the ‘5 devices’ element, that extra cost would be the value of the benefit. The fact that the extra payable may be lower than paying a separate subscription for the music,TV etc. (if that were possible) would be ignored, since it is the extra cost of providing the benefit that is the cost to the company.

However, it seems that the company wishes to have the ‘5 devices’ element. We saw above that it is the extra cost that is relevant i.e. the incremental cost. If it is appropriate for the company to take out the package with the extras because of the ‘5 devices’ element, and the extras are, effectively, ‘chucked in’ for free, then the incremental cost to the company, of the music, TV, etc. is nil -- and so that is the value of the benefit for tax purposes.

You better be clear

Unfortunately, HMRC might take the view that the package was chosen because of the music, TV and add-ons being included, and that the incremental cost is incurred in order to provide the benefit. So it would make sense for you to be clear that the company needed the storage element to be available on additional devices.

Also be aware HMRC tends to refer to the ‘marginal additional expense’ as opposed to the incremental cost, but the principle is the same. 

In an important case, Pepper v Hart (65TC421) – (see HMRC manual https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21110), it was established that this ‘marginal additional expense’ represents the cost to the company of providing the benefit. While this case involved an ‘in house’ benefit, it will also apply to ‘bought in’ benefits.

Unlikely to raise the Revenue's investigators

Given that this is not simply a matter of the company incurring a cost that relates wholly to a benefit for the director, and given the relatively small amounts involved, it is unlikely that HMRC would want to spend much time challenging what value should be attributed to the benefit. However, it is worth being clear on the justification for the company choosing that particular subscription package. Best of luck!

The expert was chartered accountant Graham Jenner, founder of tax and accounting advisory Jenner & Co.