What are the tax issues and advantages of a Home Office?

Working from home is a popular option for business owners and employees. Assuming you need to create office space you could either convert an existing room, loft, or garage or build a new structure in the garden.

VAT

1. Estimate the amount of Business & Personal Use – you can only reclaim VAT on the Business Use proportion – you might have 100% business use if you were building an office in the garden. HMRC’s published and internal guidance states,
   “Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,)
2. The invoice should be in Business Name
3. You can reclaim 100% VAT on Office Equipment used entirely for business purposes (if you reclaim VAT you need to charge VAT if you sell the equipment)
4. If you then sell your home to a buyer who wants to use the premises as part of their dwelling you don’t charge any VAT as it will be exempt

Capital Allowances

Capital Allowances are not given on land and building but you could claim for integral features, assets and equipment. Sole Traders and Partners can exclude a proportion for private use.

Benefit In Kind

Directors and Employees who have personal use of the assets will incur tax as it will be a benefit in kind. So it might be better to keep business assets for business use only to avoid this tax. Here is my blog comparing Directors Loans to Use of Assets http://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/

Expenses

You can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

• Mortgage interest or rent
• Council tax
• Water rates
• Repairs and maintenance
• Building and contents insurance
• Electricity
• Gas, oil or other heating costs
• Cleaning
• Telephone (based on usage)
• Broadband

You can draw up a home rental agreement to reclaim these costs, or claim expenses, or if the use is minimal you might find it easier to claim £4 per week as suggested by HMRC.

Here are some examples http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

Capital Gains Tax

Your principle private residence is exempt from capital gains but your home office won’t be if its exclusively used for business, but it will only be a small proportion of the property value and as such any gain will probably be covered by your annual allowance £11,100 (2016/17) if you are a sole trader or partner, if not your company could have a small amount of capital gains tax to pay if a gain is made.

If you are a sole trader or partner and there is a private use element to your home office then the office will be exempt.

Other Issues to consider

Planning Use -You might wish to apply for a Certificate of Lawfulness (Proposed)

for a change of use, for example if you wanted to use a single room in a dwelling house as an office. https://www.planningportal.co.uk/info/200130/common_projects/120/what_to_do_next/3 

Insurance – you will need to inform your home insurance company that you now have a home office

Business Rates – http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1086066821&r.l1=1073858808&r.l2=1073859221&r.l3=1086066759&r.s=sc&type=RESOURCES

steve@bicknells.net