Since the passage of COVID-19, working from home has become a standard practice in the United Kingdom, with millions of people employed and working either inside their houses or in a separate yard/shed space. Here, we will exclusively explore claimable home office expenses from limited companies and which expenses benefit from tax relief via your limited company. This article is for information only and we recommend you take professional advice from a Limited Company Accountant or a tax specialist before making any decisions.
Learn the fundamentals of limited companies to better manage home office expenses.
Conversion Costs Of Your Home’s Office
If you’re kitting out your home office with work furniture, shelves, and storage, for example, these costs would be eligible for capital allowances.
You can also claim capital allowances on products like insulation, electrical wiring, and plumbing if you’re converting an empty room, such as an extension or loft conversion.
If you want to expand your home or create a loft conversion, keep in mind that these construction expenditures are considered an improvement to your property. Although it may be paid for through your limited company accounts, it cannot be subtracted from profits for tax reasons – HMRC would see these expenditures as a “setting” rather than a “function” of your firm.
Existing ‘decorative peripherals’ (such as blinds and curtains) are an important element of your home. However, if the items are for a new room (e.g., extension or loft conversion), the company can cover the expenses of the blind or installation as long as the space is used solely for business purposes.
Building A Garden Office Or Shed
ย A garden office is usually regarded as a structure, which means it isn’t eligible for tax relief against your business earnings. Even if it’s mobile, you’ll have to budget, construct, and install it. It doesn’t imply that your small firm can’t pay for it; it just means the expenses aren’t deductible. However, as previously stated:
- Capital allowances are available for office furniture shelves, storage, insulation, electrical wiring, and plumbing. Repairs, curtains, and decoration expenditures can all be deducted from taxable income.
Therefore, It is important to understand the tax implications of building a Garden Office and how it can impact you as a director or an employee.
What Are The Expenses Of Running A Home Office?
The following are some of the extra costs that you may claim:
- Costs for heating, lighting, and utilities are set according to the size of your workspace.
- Metered water costs vary by workspace.
If you have dedicated services (such as broadband, gas, or electric) provided to your work office through a separate meter, you can claim the expenditures in full.
VAT Implications
If the firm is VAT registered, you can deduct the business’s VAT-able expenditures, such as shelving, equipment, plumbing, and wiring, from your taxable profits. You may also claim any operational expenses associated with the workplace.
If you are using the Flat Rate VAT Scheme, you can only claim VAT on capital items costing more than ยฃ2,000 during a single tax year. Any VAT charged, however, must be backed by a VAT invoice in the company name, and the expenditure must be for purely business reasons.
Other House Office Problems (Including The Sale Of Your Home)
If you use part of your home as a business workspace, garden office, or shed, there may be capital gains implications if you sell your property, while the places utilized just for business purposes will not qualify for primary residency relief.
There are also other factors to consider, such as business insurance and business rates, which may be due if you operate a company from home.
If you shut down your firm, the extension or garden shed will be taken away from you and sold back to you before closure.
In case you’re working through a limited company and are inside IR35, these expenses will be paid from the existing business or taxed funds, which will be sent to the firm. If you think that you will be IR35 caught in the future and intend to work via an umbrella firm for the long haul, any extension expenses and office or garden shed expenditures should not be expensed through your current dormant business. Because you would not satisfy the completely business-related requirement for expense purposes (in other words, because you are not trading through your existing PSC), there would be an advantage in kind.
In Conclusionโฆ
If you are working through your PSC in the long term and must work from home on a regular basis, setting up a distinct area is an excellent choice. However, keep in mind that if you spend the bulk of your time working onsite somewhere else, HMRC may question the profitability of a significant expenditure on your workspace. Given the complexity of this problem, we suggest some qualified contractors obtain advice tailored to their circumstances before making any significant expenditures.
If you use part of your home as a business workspace, garden office, or shed, there may be capital gains implications if you sell your property, while the places utilized just for business purposes will not qualify for primary residency relief.
There are also other factors to consider, such as business insurance and business rates, which may be due if you operate a company from home.
Additional Resources
