Can I refurbish my home office through my limited company?

Working from home has become a norm since covid-19 struck and nowadays, millions of Britons are working from home, including the directors of personal service companies, either by using a designated work area of their house or in a separate garden/shed space in the setting of their principal residence.

Here, exclusively for ContractorUK, I will explore what expenses can be claimed in this respect, and which expenses benefit from tax relief via your limited company, writes Matt Fryer, group compliance director at Brookson.

Designated office in your home -- conversion costs

If you are kitting out your home office for instance, with 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.

If you are looking at extending your property or building a loft conversion to your personal property, it’s worth 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 and parcel 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 shed

 A 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 you 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 benefit from 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 workspace

If 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 implications

If 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 claimed needs to be supported by a VAT invoice in the company name and the expense needs to wholly business related.

Other home office issues (including selling your property)

If you are attributing part of your personal property as 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 residency relief.

There are also other considerations such a business insurance and business rates that maybe 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 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.

In conclusion…

If you are working through your PSC in the long term and 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.’ Given the complexity of this issue we would recommend contractors seek advice specific to their circumstances before progressing with any significant spending.