Reclaiming VAT on a broadband or phone bill you also use privately
A VAT-registered sole trader works from home and pays the household broadband from the business account. The invoice shows VAT, and the whole payment appears in the bookkeeping. Only part of that VAT is input tax. HMRC's VAT guide says that for services bought for both business and private use, only the business proportion of the VAT can be input tax. That split comes first. A restriction for exempt business activity is a later and separate step, which a trader making only taxable supplies will not reach.
Business share first, exempt restriction second
HMRC's guidance sets an order. First establish how much of the purchase is used for business and how much for non-business or private purposes. Only the business share can be input tax. If the business also makes exempt supplies, a further partial exemption allocation applies to that business share afterwards.
Mixing the two steps leads to errors. A ratio of taxable to exempt turnover measures business activity, not household use, so it is not automatically a suitable measure for a broadband connection used by a family.
HMRC's separate guidance on private use confirms that continuous services, such as telephone or electricity, need an input tax adjustment to reflect private use.
Sources and context, checked :
Choosing a fair method
Before apportioning anything, take out costs that are wholly business or wholly private. A dedicated business phone line and a personal streaming subscription need no split. What remains is genuinely shared.
For shared services, HMRC requires a method that is fair and reasonable and justified by the facts. It does not prescribe a business-use percentage. Time spent working online, call records or another measure can work, as long as it reflects how the service is actually used. Write down why the chosen measure fits.
Sources and context, checked :
Hypothetical: a broadband bill at 60% business use
Hypothetical: a VAT-registered sole trader making only taxable supplies receives a broadband bill addressed to the business for £200 plus £40 VAT. A documented review of usage for the billed period supports 60% business use. The trader is not on the Flat Rate Scheme and makes no exempt supplies.
The business input tax is 60% of £40, which is £24. The remaining £16 relates to private use and is not reclaimed. The VAT Return follows the supported percentage, not the fact that the business bank account paid the full £240.
The 60% figure belongs to this example. Another household, or the same one after a change in working pattern, could support a different result.
Goods, fuel and assets work differently
This approach is for services. HMRC's guide gives mixed-use goods a different possible route: in qualifying cases, a business may reclaim the VAT and then account for output tax on the private use. Road fuel and certain assets have their own special rules.
Do not carry the service method over to cars, private fuel, land or assets within the Capital Goods Scheme. Check the rules for those items before deciding what to reclaim.
Sources and context, checked :
Keep the evidence with the return
Set the percentage before the next return that includes the bill, and file the working with it. Note a review date, and revisit the figure when household or work patterns change materially.
- The invoice and the service period it covers
- Usage evidence relevant to the service, such as representative records
- A written basis for the percentage and why the measure reflects actual use
- The calculation of business and private VAT for each period