Contractors’ Questions: Can I expense new office items now my partner is working from home too?

Contractor’s Question: My home office has always been a room dedicated to my limited company’s business but it’s also always been quite stripped down. Since my partner who works a full-time 9-to-5 is still furloughed she too now works in the home office, and has just got told by her employer she will be kept working from home for a while longer yet.

She now wants to add a significant number of workspace extras to make the office more conducive to concentrating and spending long periods working in it. A new lamp purchase (to place over her side of a desk we’ve extended for her); three or four large plants, their pots, accessories like steamer and watering can, and even a fridge for us both with necessities, are the items we’re looking at.

It comes at a time when I need new overhead light bulbs, plus batteries to run my computer peripherals. So, could I put all the items we’re seeking on my company -- those on my side of the office divide and hers!?

In other words, as it’s my office dedicated to my PSC’s work, could it be justifiable that a lamp in the room is necessary, plus the plants and the like too? Sounds sniffy to ask perhaps, but the cost in total is going to be quite significant. I was thinking of asking her employer to help with the bill but, if not, my company could pick up the tab for the items we want, right?

Expert’s Answer: When considering the costs of working from home, we need to remind ourselves of the overall rationale for claiming those expenses for a business. 

The principle is, that if you incur costs which are ‘wholly and exclusively’ for the purpose of the trade, with only incidental ‘other’ use, then the expenditure will normally be allowed against income when computing business profits.

New HMRC help is available

As a result of the current health emergency triggered by the covid-19 pandemic, additional guidance has been produced by HMRC to deal with situations that have become commonplace. For example, if an employer purchases or reimburses the cost of computer equipment required to be used at home so that a worker can continue to fulfil their role, no taxable benefit will be produced provided the equipment does not become the property of the worker. In essence, it must be ‘given back’ at some point.

The rules for an employee meeting the costs of working at home are different, and a ‘wholly, exclusively and necessarily’ test is used instead. But here, we are discussing, at least at face value, a contractor business with home office expenses.

In your question, I see you say that your partner is on furlough, and so working at home.  I’m going to assume you mean they are working at home and not furloughed, for the rest of my answer. If they were furloughed and their furlough agreement did not prevent it, you might be able to offer them work, which might also increase the amount of ‘home office’ expenditure you can claim for as a by-product. I’m also assuming, of course, that you still have work to do and have not furloughed yourself, as a PSC director.

What should occur to you...

The situation, then, is that you have a room which was furnished to some degree to support you in your home working.  Now, another person wants to utilise it, or part of it, for their own working needs. Immediately, it should occur to you that at face value, if that extra use requires extra expenditure, then that’s probably not attributable to your PSC business, by definition. 

While you keeping the room ‘comfortable’ for your own needs, which you already were, would most likely be allowable for tax purposes, now making numerous additional adjustments including various horticultural features feels like a good example of crossing the ‘reasonable’ line in this area!

You mention you’ve expanded the desk for your partner, and are thinking of adding lighting for it – that’s not a cost your business needs to meet. The new lightbulbs and batteries that you say you were going to buy anyway should be fine – they’d already been classified as required. Depending on the layout of your property, unless you are expecting client visits to your home, a fridge and other more opulent items are highly challengeable as a tax allowable cost.

Illuminating?

There’s mention in your question of her employer meeting some of the costs perhaps – and maybe this is illuminating. Would that employer provide a computer, perhaps?  Maybe, but they’re likely to draw the line long before we get to plants and a fridge. That’s because, in their case, providing items for an employee would need to meet the requirements of ‘necessarily’ as well as the ‘wholly and exclusively’ test which you must apply as a business.

Also – a technical point, but depending on how you’ve claimed for any utilities via your home-based business, you may need to revisit that if you do allocate part of the room to your partner.

Sensible, just not expense-able

Finally though, it’s worth noting that this period of coronavirus outbreak, coronavirus lockdown and now coronavirus lockdown lifting has been hard for all of us, and it’s not over yet. So, faced with a continued period where you’re going to be spending a lot of time in quite close contact with your partner, it may well be that it’s sensible to agree to many of her suggestions. But just don’t expense everything through the business! In this case, tax probably can’t help you a great deal, but in the interests of your relationship, that shouldn’t be the only factor you consider!

The expert was Chris James, director of accounting services at JSA Group.