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In this article, we will discuss what expenses can be claimed in the respect of having an office at home, and which expenses benefit from tax relief via your limited company.
Designated office in your homeIf you are adding office furniture, shelves and storage, then these expenses would benefit from capital allowances. If you were converting a new room such as an extension or loft conversion, you can also claim tax relief through capital allowances on items such as insulation, electrical wiring and plumbing; however, if you are looking to extend your property or convert your loft, it’sworth noting that these build costs are considered an improvement to your property. So, although it can be paid for through your limited company, it can’t be deducted from profits for tax purposes- HMRC would consider these costs as a “setting” and not a “function” of your business.
Existing ‘decorative peripherals’ (such as blinds and curtains) are part of your home. However, if these items relate to a new room (i.e. extension or loft conversion) then the costs of the blind or fitting can be met by the company as refurbishment costs, as long as the room is used solely for business purposes.
Building a garden office or shedA garden office is normally classed as a structure, which means it’s not usually possible to claim tax relief on it against your business profits. This includes planning, building and installation, even if it’s mobile. It doesn’t mean that your limited company cannot pay for it -- it means that these costs aren’t tax deductible.
However, as noted above:• Office furniture shelves, storage, insulation, electrical wiring and plumbing benefitfrom capital allowances• Blinds, curtains, repairs and decoration costs can be expensed accordingly.What about home office running costs?It is possible to claim the additional costs of:• Heating and lighting costs proportionate to your workspace• Metered water costs specific to your workspaceIf you have dedicated services (via a separate meter) provided to your work office though,such as broadband, gas, electric, then you can claim the costs in full.
VAT implicationsIf the company is VAT registered, you can claim the VAT back on the business VAT-able expenses e.g. shelving, equipment, plumbing and wiring. and on any running costs pertaining to the workspace. If you are using the Flat Rate VAT Scheme, you can only claim VAT on capital items in excess of £2,000 on a single capital item of expenditure. However, any VAT claim needs to be supported by a VAT invoice in the company name and the expense needs to be wholly business related.
Other home office issues (including selling your property)If you are attributing part of your personal property as a business workspace, garden office or shed, then there may be capital gains implications when you come to sell your property as the areas used exclusively for business purposes will not qualify for principal residence relief.
There are also other considerations such as business insurance and business rates that may be payable if you are operating a business from home.
If you close your company, then the company owns the extension or garden shed, and will have to be “sold” back to you prior to closure.If you are inside IR35 and working through your limited company, these company costs will be paid out of existing company or taxed funds, being paid into the company.
If you consider that you will be IR35 caught going forward, and intend to work via an umbrella company such as NWM for the foreseeable future, any extension, office or garden shed costs should not be expensed through your existing dormant company, as you would not meet the wholly business-related requirement for expenses purposes (given that, in effect, you are not trading through your existing PSC). And so there would be benefit in kind implications here.
ConclusionIf you are obliged to work from home on a significant basis, the fitting out of a separate workspace is a viable option; however, be aware that if you spend the majority of time working onsite elsewhere, HMRC could query the viability of significant expenditure on your workspace being ‘wholly and exclusively for business purposes.’
This issue is very complex so we would recommend contractors seek advice specific to their circumstances before progressing with any significant plans. To get the guidance and support that you need, talk to one of our highly experienced team members or read our other blogs for further help.