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'Posh Shed' office. What can you claim?

My client has just completed the building of a 'posh shed' in his garden. A pre fabricated type shed to be used as an office, no planning required. He has just passed me a pile of receipts relating to the purchase and construction with the expectation that they are tax deductible. He has 2 businesses, one flat rate and another standard vat.

I have a strong inclination that they are not tax deductible and if they were put through the business (capitalised), then capital gains tax would kick in when he sold his property (the office is in his garden). Is this correct?

Does anyone know if any expenses can be put through the businesses and if any VAT can be claimed back? I think claiming back the VAT on buildings relates to residential...not sure if an office is classed as residential?

Basically I don't know much but I am sure one of you out there has come across this before.There seems to be a trend these days for these posh offices...quite fancy one myself!!

Many thanks in advance.

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Not tax deductible

The shed is certainly capital expenditure. As it is to be used as a static office unlike those portacabins that builders move from site to site, it does not qualify for CAs. There may be fittings which could qualify as plant, such as whatever form of heating is installed.

I don't comment on VAT matters I'm afraid.

CG - wise. I haven't really considered this but in principle if part of a PPR e.g. a room is used exclusively for business purposes then part of the gain on disposal would not qualify for relief. But we are talking about a movable building here which may or may not be part of the sale and in any case would depreciate in value. I suppose that the bit of the garden on which the office stands could be considered not to qualify for PPR though the amount apportioned to that part of the property having regard to the value of that part and the length of time in use for business - plus the last 3 years of that part of the gain would be exempt anyway. In addition you could rollover if the office is transferred to a new residence. Personally I wouldn't worry about it.

kmtaxconsultant.co.uk

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Agree with Ken - but as to VAT....
.....there are no problems on claiming input tax. If there's any perosnal use an apportionment can be made or the full input reclaimed reclaimed and output tax charged on the supply for personal use. Any reasonable method of apportionment will do.

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Thanks Ken & Tony, was

Thanks Ken & Tony, was starting to think that no one will respond!

Just to make sure I am reading this correct;

1. VAT can be claimed back on ALL expenditure on the posh shed.

2.The value of the posh shed skeleton itself can be capitalised and depreciated, but no CA's will be available.

3. The 'integral features' can be capitalised and CAs will be available.

I see there is an exempt amount on capital gains of 10k which is what the posh shed has been valued at, so that should not be an issue. A question which has come out of this now is, if the shed is shown as a business asset, would business rates be applicable?

Thanks again, much appreciated.

 

 

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Hi LeighM

In answer to your questions

Yes, VAT on all expenditure for the "posh shed" can be reclaimed - even where the flat rate scheme applies. But if there is non-business use then VAT must be accounted for on this as indicated in my first post.CorrectNot all the fixings in the shed will necessaily be integral features. Shelves, cupboards etc can be included in the mainl capital allowances pool. Remember that the Annual Investment Allowance can apply to the first £25,000 of expenditure qualifying for CAs - allocate this against integral features first to get maximum tax deduction in the year of expenditure. 

My further thoughts on the CGT treatment are : 

the shed might qualify as a wasting asset (having an expected life of less than 50 years) for CGT purposes and therefore would be wholly exempt, orit would probably be sold at a loss and so there would be no gain to worry about, although the question then would be whther you could claim a CGT lossor if neither of the above applies, the chattels exempltion might reduce the gain on the main structure.the internal fixings, if CAs have been claimed on these will only be liable to CGT where the sale proceeds exceed the original cost - this seems an unlikely event - and again the chattels exemption could be applied to reduce or wipe out any taxable gainOverall as Ken said CGT probably isn't something you need to worry about.

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For the PPR

Put a bookcase and a guitar in the corner, exclude 5% of any costs relating to the building, da-dah! Doesn't infringe on a PPR claim.

Or at least it doesn't for an office in a house.

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I assume you mean he can claim back VAT under flat rate if the 2k rule applies? There is not another rule I am missing? I see with the flat rate that they exclude building materials and work (labour I assume), as they are not capital items. Could he claim back VAT on his standard VAT business for these?

I will need to revisit my CA's as not looked at since my exam days 7 years ago! I think this might get a bit messy. Its taking a bit of getting my head round but the advice you have given me is fab. Thanks again

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Yes he can reclaim VAT but....

As your client's businesses must be separate entities, e.g. one a company or partnership and the other a sole tradership, and one of them operates the FRS they must apportion the amount of VAT between each business in a fair and reasonable way. Having done this you can then set about deciding how much VAT input tax can be reclaimed.

VAT paid on building materials can't be claimed by the FRS business, but don't confuse building materials with assets such as shelving etc these are capital assets in their own right, and where a number of these are bought at the same time from a single supplier the cost of these can be aggregated to test whether the £2,000 limit is reached. So I feel comfortable that if your client bought fittings (but not building materials) from the same supplier as that which sold them the “shed” itself, and at the same time, the VAT on the cost of these can be recovered because the overall cost would exceed £2,000. 

Private use

Just to make things more fiddly, if there's private use of the shed the FRS scheme won't have to restrict its claim or account for VAT of this, but the non-FRS business will.

Isn't tax fun! 

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I am going to embarrass myself here....do I just hit P&L with the building materials, possibly under a heading of office materials? He does a bit of building within his business, so I could put it in with other materials he purchases...should I show it separately? I know I should be shot for asking such a question but I don't know!

Cheers Tony

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