Homeworking is expected to continue, so more people are researching the tax implications of setting up a home office. The answer to corporate taxes isn’t as simple as you might think Is the cost of building a home office is tax-deductible.
Let’s say you work through a limited business. You are interested in building a home office. This could be done by either expanding or building a garden or turning a garage or another room into a permanent office. This is a complex area with many factors to consider. We recommend consulting an accountant before you act. Your choice, of course, can have significant implications for corporation tax, income tax, VAT, and CGT.
Corporation Tax
First, we believe that corporations cannot deduct the cost of building new office spaces from their corporation tax. Before HMRC introduced Structures and Buildings Allowances, businesses were not allowed to claim capital allowances for building works. However, the SBA currently prohibits home offices from being eligible for capital allowances.
There is a distinction between renovations or improvements in tax. When you plan works, repairs are tax-deductible. Improvements are not.
There is also tax relief available for fixtures, fittings, and furniture. Thermal insulation is also eligible for tax relief. A shed is not allowed to be considered a structure.
Income Tax/BIK
You may be deemed to have benefited from the work done. This could lead to liability for income tax. You could get the benefit from the use of the office, or it could be due to an increase in the value of your property.
CGT
Capital gains tax is not applicable to a principal residence. This applies to your home office, provided that it is not used solely for business purposes. You might face problems when you sell your house if you make a home office out of a portion of it.
You can see that there are traps. One rule prohibits you from personally benefitting, while another bans your exclusive business use. Please get in touch with our team if you’d like us to review the details of your case.
VAT
You can recoup VAT on any building work if your limited company has VAT registration. You will not be eligible to claim the full amount of VAT paid if the office is used for personal purposes. We can help you determine the percentage of VAT that is eligible for reclaim.
Also, it is worth noting that if you use flat-rate expenses, the treatment will differ depending on the cost of the work performed.
Business Rates
It is worth speaking to your local council before you decide to build a home office on your property. This is especially important if you intend to have employees there. You may be charged business rates if you alter the property’s nature.
Taxes can be tricky when you consider the use of your home for business purposes. This is due to the mixture of personal and business usage, private ownership, and company usage. To allow workers to claim a deduction for the cost of a home office, we recommend they create a contract between them and the limited company. These contracts are designed to help you balance your situation and what HRMC allows.
You may have a question such as ” Is the cost of building a home office tax-deductible?” We can discuss your individual situation and help you minimize your tax obligation with any work you may be considering.
