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Claiming costs for new home office

Claiming costs for new home office

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Good morning

I have tried to research previous threads but couldn't find a definite answer.

My client (director of ltd co) is having her whole house extended and one of the new room will be used as her home office. Up until now she had her desk and files in a corner of the sitting room but this new room will allow her to have a dedicated space for work and client's meeting. So far she has only claimed £4 a week as use of home but I suggested we draw up a rental agreement between her Ltd co and owners of the house (her husband and herself).

The idea is to charge a rent equal to a fair apportionment of fixed and running costs of the house (area and usage of office).

Besides the usual expenses such as council tax, utility bills, mortgage interests... are there any other costs they could claim, such as capital allowances (on furniture and fixtures) for the rental business? I am aware of the restriction of claims for CA in a furnished dwelling however if this is a commercial lease would they be available?

Also if we have a commercial lease what are the implications regarding business rates? and would a non exclusive use (to avoid some loss of PPR) prevent it from being a commercial lease in the first place?

Another suggestion would be for the company to bear the costs i.e. furniture - some are 100% business use (i.e desk/ filing cabinets) but she also bought a nice expensive sofa which would probably attract a BIK. I believe VAT reclaimed would also have to be apportioned according to business use.

Again I am unsure as to which costs would be available if supplied to the company - things like radiators, carpet, paint etc...used exclusively for the office. I don't believe they are but would appreciate if someone could point me to the legislation on this.

And of course the client is adamant all the costs should be put through the company.

Sorry for such a long winded question. I am grateful for your comments.

Replies (13)

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By Phil Yaboots
15th Oct 2015 11:51

NA

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Hallerud at Easter
By DJKL
15th Oct 2015 12:03

Given company obtains tax relief at say 20% on cost but H & W may be liable at 40% re rental income, and given what they are renting  is in effect a residential space that the company intends to use for business purposes, and given soon H & W may have a restriction on relief for interest they pay to offset against said rent, one reallyhas to ask how beneficial is such an arrangement?

 

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By Chipette
15th Oct 2015 12:12

Thanks

Thank you for your answer DJKL. Regarding rental income, it would not create a profit if costs = rent so client  wouldn't have extra liability.

Is the arrangement definitely not a commercial lease so no CA available on the rental business?

 

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By Duggimon
15th Oct 2015 12:16

Don't do it

First of all, the property isn't available to be rented commercially because it's residential, I'm fairly sure the local authority would have something to say on it. Secondly, as DJKL points out, the best outcome of the rental agreement would be tax neutral unless H&W are not currently in an efficient tax position.

I would suggest you put any items W&E for trade through the business but restrict this to items such as computer equipment and treat any furniture as not W&E for trade as the taxman certainly will. Likewise the costs of the building work. If it's part of the house HMRC will never ever accept 100% business use, if anyone can point out a situation when it's happened then I would be most grateful and tremendously surprised.

As regards the £4 a week, if you can work out a fair apportionment of the household bills then you needn't use £4 a week at all, with some of our clients we bill the company significantly more based on the proportion of bills fairly attributed to business use.

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By Chipette
15th Oct 2015 14:42

Thanks Duggimon

 Thank you for your advice. I will suggest a licence agreement on fair apportionment of household bills as the best way to reclaim some of the costs. 

I was trying to avoid BIK on items not used exclusively for business.

 

Edit: No minimal private use exemption available for furniture.

 

Could the benefit be calculated on actual use rather than availability? if she is going to use the furniture in her office say 80% for work can the benefit be 

20% x (20% of market value when first made available) ?

 

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Hallerud at Easter
By DJKL
15th Oct 2015 12:42

Am I missing something

Chipette wrote:

 Thank you for your advice. I will suggest a licence agreement on fair apportionment of household bills as the best way to reclaim some of the costs. 

I was trying to avoid BIK on items not used exclusively for business. I don't suppose she can claim the minimal private use exemption if she uses her office for work say 80% of the time?

 

But if H & W are higher rate taxpayers how are you intending to  calculate  the apportionment of mortgage interest cost  incurred by H & W (when setting  appropriate charge  to actually be paid by the company) given H & W will soon be restricted to relief at 20% on this cost against the rental received? This surely in the long term, for HR taxpayers, has to lead to a personal tax bill ,or am I missing something?

 

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By Chipette
15th Oct 2015 12:52

Yes I am aware of this

but I understand the restriction for relief doesn't start until April 2017. We can review the agreement at that time.

(btw client is BR tax payer only husband is HR)

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By Discountants
15th Oct 2015 15:06

CGT & PPR

A bit sneaky here I admit but this I tend to use this tactic with clients who want to put the whole of something like this through their company.

I mention that dedicating an area exclusively to the business would mean that area would not qualify for PPR relief when they sell their dwelling.

The prospect of a CGT at bill on the house they are living in usually dissuades my clients from attempting to put dual-use things through and helps them see that they can't have their cake and also eat it :)

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By julianansell.hotmail
16th Oct 2015 12:16

Home office costs

Provided the licence to occupy specifies Monday to Friday for the business occupation and personal occupation takes place at the weekend my understanding is that there is no problem with PPR on disposal of the house.

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Morph
By kevinringer
16th Oct 2015 13:26

PPR is only lost if business has exclusive use

See http://www.hmrc.gov.uk/manuals/cgmanual/CG64760.htm.

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By pauljohnston
19th Oct 2015 08:18

It would appear

that your use of a licence apportioned on rooms or sq footage and hours used (business v personal) where the rent charged by the owners just covers cost would be a tax effective solution.

I can see no problem with the Company buying office furniture.  The sofa I would suggest be a directors current account item but that having said they are turning up more and more in offices so may be a company purchase with a bik, although I have not researched this at all.

Do let us know your approved solution as I can see this being a more regular question.

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By Chipette
19th Oct 2015 14:11

Thanks
Thank you all who have contributed. I have explained to the client non exclusive use and costs allowable. She is ok with the licence agreement.
She wants to keep the sofa in the company and accepts the BIK.
Somehow I can feel she is not entirely convinced as her friends seem to be able to put a lot more through their businesses. I would love to have a chat with their accountants to see what I am missing.

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By Phil Yaboots
19th Oct 2015 15:50

Difficult

Chipette wrote:
... as her friends seem to be able to put a lot more through their businesses. I would love to have a chat with their accountants to see what I am missing.

It's a difficult message to convey without sounding defensive but the reality is that some accountants don't do things correctly.  Just note the risks that come with "taking a flyer" or similar on tax affairs.

 

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