Contractors’ Questions: Can I claim an internet extension socket as a company expense?

Contractor’s Question: Can the parts and installation costs of fitting an internet extension socket in my home to enable faster, more reliable broadband be payable by my company?

I’m a PSC director who in December moved into a new residential property but the only internet connectivity is currently being enabled by a dongle plugged into a laptop.  

The issue is my main desktop PC, which I consider my primary work device, does not have Wi-Fi capability and so the dongle route is a non-starter. Unfortunately, the property’s master telephone socket is in the (converted) garage, downstairs, but like most folks, I don’t want to work in a converted garage and instead, have turned the smallest upstairs bedroom into an office.

From running speed tests, a new extension socket, with my main desktop PC plugged directly into the socket, would enable faster, more reliable broadband, allowing me to continue to supply my clients – currently two online-only brands. But BT says the cost of the extension would be £150 and upwards. Surely my company can pay and there would be no tax implications?

Expert’s Answer: Boiling the question down a little, if I may, your question really consists of two elements:

1. Are there any tax implications for the limited company, in paying for the internet socket extension?

And

2. Are they any tax implications for the director/shareholder, if the company pays for the extension?

In answer to 1), if the company had its own premises, it could pay for the cost of the extension and there would be no question about whether it was tax-deductible for the company. 

Complication, and solution

The apparent complication here is that the extension would be in the director/shareholder’s house.

However, it sounds very much like the company needs the director/shareholder to have adequate internet access, in order to properly do his/her work and that the proposed extension is a sensible solution. 

The company can agree to pay for the cost of the installation (including parts) and this will be a tax-deductible cost for the company (in arriving at taxable profits).

Personal benefit?

Let’s now answer 2), i.e. whether this leads to any tax implication in respect of the fact that it is installed in the shareholder’s/director’s house. 

It is certainly true that there could be a personal benefit to the director or his family from the installation of the internet extension socket.

However, from the question, it is clear that the primary reason for the installation is to provide the director with adequate internet access for the purposes of his/her work for the company.

Merely incidental

While there could also be a benefit for the director i.e. personal use of the internet extension, this appears to be merely incidental.

So, is there a taxable benefit in respect of the personal use? In such circumstances, HMRC tends to take the view that, if the personal benefit is merely incidental, then there is no taxable benefit.

In any event, there is a general rule that the value of the benefit, is the incremental cost of the personal element. So, if the cost of installing the extension is £150, the incremental cost of providing the personal benefit to the director is zero.

Maybe hold off on those Wi-Fi boosters

On the other hand, if the company also paid for, say, additional equipment to enable Wi-Fi availability from the extension socket, purely for personal use, then the cost of that equipment would be the incremental cost of providing that benefit. There would be a taxable benefit of the cost of that equipment.

Of course, it may not be too difficult to demonstrate that a Wi-Fi connection for the laptop, to be used as a second device for work, would make sense for the company. In that case, even the cost of the Wi-Fi router could be justified as a company expense and with no incremental value as a taxable benefit for private use.

In closing, let us acknowledge that many contractors already undertook a large proportion of their work from home, pre-coronavirus pandemic, but it is likely that more and more contractors (and indeed employees), are going to need additional facilities to work from home efficiently.

Perspective as a PSC is two-fold...

When considering any cost associated with a PSC contractor working from home, it needs to be looked at first of all from the company’s perspective and then from the director’s/shareholder’s (in their capacity as an employee of the company), as to whether there is a taxable benefit and, if so what the value of the benefit is.

If the primary motivator in incurring the cost is to do with the director’s work on behalf of the company, then there will be little or no value to the taxable benefit.  On the other hand, if the primary motivator is personal, then the whole cost could be a taxable benefit – and, for simplicity, it may just be easier to pay for it personally. Good luck with the installation!

The expert was Graham Jenner, founder of contractor accounting advisory Jenner & Co.