The Router in the Hallway: A Director's Guide to Connectivity Costs in 2026/27

Few expenses look as ordinary as a phone bill. Yet connectivity costs sit on one of the more uneven surfaces in the tax code: mobile phones enjoy a specific and generous exemption, while home broadband has no equivalent at all. The difference is not obvious from the invoice, which is why so many small companies treat the two in exactly the same way and, in doing so, quietly create a taxable benefit.

Begin with the contract, not the amount

The first question is never "how much did it cost?" but "whose name is on the agreement?". A line contracted to the company, paid from the company account and used by a director or employee is a different creature from a personal contract that the company happens to have reimbursed. The tax treatment follows the arrangement, not the bank statement.

A useful discipline is to keep a single schedule listing every phone number and connection the company pays for, showing the account holder, the user, the monthly cost and the business rationale. That one document answers most of the questions an inspector would ask, and it takes an hour to build.

The mobile phone exemption: one device, one employee

There is a long-standing statutory exemption for a mobile phone provided by an employer to an employee. Where the contract is in the company's name and the company provides the device, the cost is deductible for corporation tax and no benefit-in-kind arises. There is nothing to report on a P11D and no Class 1A national insurance to pay.

The exemption is narrower than it first appears. It covers one phone per employee. A second handset, an additional SIM used by the same person, or a device provided to a family member who is not an employee falls outside it. HMRC has accepted that smartphones and comparable connected devices sit within the relief; tablets and laptop data SIMs are less clear-cut and are safest treated as business-only equipment, with private use restricted or carved out.

Where an employee is given a choice between a company phone and a salary supplement, the optional remuneration rules can complicate matters, though the phone exemption itself generally survives. It is worth taking advice before restructuring an existing arrangement.

When the SIM is in the employee's own name

A common and more fragile practice is for the director or employee to hold the contract personally and reclaim the cost from the company. The exemption does not apply here. Reimbursement of a personal phone bill is, in HMRC's view, simply earnings, subject to PAYE and national insurance, unless the payment is confined to the business element and can be supported.

In practice, a company may reimburse the cost of business calls made on a personal phone where the bill is itemised and the business share is identifiable. The employee may also be able to claim a deduction for the business proportion of the line rental where the contract is genuinely necessary for the job. Both routes depend on evidence, and both are considerably weaker than putting the contract in the company's name in the first place. For most owner-managed companies, transferring the contract is the cleaner answer.

Home broadband: no equivalent exemption

There is no statutory relief for home broadband of the kind that exists for mobiles, and HMRC's established view is that a domestic internet connection is not an additional expense of working from home in the way that heat and light are. The connection would exist regardless of the employment, so the starting point is that a company paying a director's household broadband bill is meeting a private cost.

That does not make every such payment wrong. Where a home connection is genuinely used for the business and the company is the account holder, a reasonable business proportion is commonly accepted as a deductible expense, with the private share treated as remuneration of the director or otherwise restricted. What HMRC will not accept is a blanket claim for the whole bill supported by nothing more than an assertion that the director works from home.

Directors and the family router

Owner-managed companies present the awkward case: one connection, one household, and a director who answers emails at nine in the evening. A defensible approach has three elements.

First, establish whether the connection is in the company's name or the director's. Second, settle on a method for splitting the cost, whether a fixed percentage, a days-worked calculation or a comparison with a comparable business-only tariff, and write the method down. Third, treat the private element consistently. Some companies add it to the director's pay through the payroll; others simply restrict the deduction claimed. Either is workable, provided the same approach is used every year.

Where two directors share a household, the arithmetic needs particular care. Two phones may well be exempt; one broadband line cannot be claimed twice.

The homeworking allowance and where it stops

Employers can pay a homeworking allowance of £6 a week, or £26 a month, without supporting evidence, where the employee's home is a workplace under the arrangements and the employee bears additional household costs. The allowance is intended to cover running costs such as heating, lighting and metered broadband, and it can be paid to directors who genuinely work from home.

Two cautions apply. The allowance is a reimbursement of additional costs, not a bonus, and it should not be paid where the home is not a workplace. And it is a fixed sum: employers who wish to pay more must be able to demonstrate the actual additional cost, which is rarely worth the administration for a single connection.

What the records need to show

A connectivity policy stands or falls on documentation. At a minimum, retain:

• the contract or account confirmation showing the account holder;
• itemised bills identifying calls, data and line rental;
• the business-use calculation, with the method stated and applied consistently;
• a short written policy, approved by the board, setting out what the company will and will not pay for;
• for reimbursed personal contracts, evidence of the business element and a record of how any private share was taxed.

VAT on a shared connection

VAT adds a second calculation. Where a connection is used partly for private purposes, only the business proportion of the input tax is recoverable, and the working should be kept alongside the invoice. For mobile phones provided under the exemption, input tax is generally recoverable in full where the contract is the company's and private use is not significant; where a phone is used substantially for private calls, an apportionment is the safer course.

A short conclusion

Connectivity is a small line in the accounts and a disproportionate source of risk. The remedy is not complicated: keep contracts in the company's name wherever possible, apply the mobile phone exemption to one device per person, accept that home broadband must be split rather than assumed, and write down the method. A director who can produce a one-page schedule and a consistent calculation has little to fear from the question.