Communication costs are a routine monthly overhead: line rental, call packages, mobile airtime, broadband and hosted phone systems. Two situations need more thought: contracts that include a handset, and connections used privately as well as for business.
Accounts
| Account | Content |
|---|---|
| Telephone and internet | landlines, mobile airtime, broadband, VoIP and hosted phone systems |
| Computer equipment (asset) or small equipment | handsets and routers bought outright, according to the capitalisation policy |
Hosting, domain names and cloud software are better kept in software and subscriptions, so this account shows connectivity only.
Handsets bundled into airtime contracts
Many business mobile contracts include a “free” phone, with a higher monthly charge over 24 or 36 months. In substance the business is paying for the handset in instalments. For most small businesses the simplest acceptable treatment is to expense the monthly charge as it is billed, because the handset value per line is small. If the business has a large fleet of expensive devices, the network will usually show the device cost separately; capitalise it, or recognise a prepayment, and depreciate it over the contract.
Check the VAT invoice too: on some contracts the device element is invoiced up front with VAT and the airtime monthly.
The mobile phone exemption
One mobile phone provided to an employee or director, including its line rental and private calls, is tax-free if the contract is between the company and the provider. Paying or reimbursing the employee’s own personal contract does not qualify: that is taxable earnings and goes through payroll. A second phone for the same person is a benefit in kind. See HMRC’s guidance on mobile phones as an expense or benefit.
Home broadband and personal lines
Companies: if the company takes out a broadband contract in its own name for an employee’s home, it is a benefit unless private use is insignificant. If the employee holds the contract, the company can reimburse only additional business calls tax-free, not a share of the line rental.
Sole traders: claim the business proportion of a home broadband or phone bill, based on a reasonable estimate of business use. Keep a short note explaining the percentage.
VAT on phone bills
Business phone and broadband supplies are standard-rated. Reclaim VAT only on the business use; where a line is used privately by a sole trader, apportion the input VAT. Itemised bills from a company contract support the reclaim without apportionment if private use is incidental.
Example: a monthly bill
A company’s monthly invoice shows £180 airtime for six mobiles and £45 office broadband, plus £45 VAT.
| Account | Debit | Credit |
|---|---|---|
| Telephone and internet | £225 | |
| Input VAT | £45 | |
| Bank (direct debit) | £270 |
Controls that save money
- Review the bill for lines belonging to staff who have left.
- Check roaming and premium-rate charges each month.
- Note contract end dates; out-of-contract tariffs are often much higher.
Related costs are covered in software and subscriptions and, for employees’ own expenses, expense claims.
For the tax side of phones, including what sole traders can claim, see mobile phone expenses for business.