Share this content
28

creating and maintaining a home office

creating and maintaining a home office

Didn't find your answer?

I appreciate this issue will have been raised many times before on Aweb but I am interested if anyone has direct experience of HMRC current view on this:

Small H&W owned Limited company providing (e.g.) writing services. The work is conducted pretty much full time at home. If the company spends say £25k creating additional workspace i.e. an office is it acceptable for the company to pay that expenditure which will almost certainly enhance the value of their home. Does it make a difference if the dirctors agree to repay the company in the event of the home being sold? The directors occupy the home office under an informal licence agreement whereby they pay the company £1,800 per year rent. 

Replies (28)

Please login or register to join the discussion.

My photo
By Matrix
07th Aug 2020 10:35

You should look into the BIK rules. I don’t see the point, we aren’t meant to ask questions but I don’t see how the company would get relief on the expenditure if it doesn’t own the property.

Thanks (1)
Replying to Matrix:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
07th Aug 2020 11:36

Just to clarify, as the editor in chief of the site, I have posted elsewhere that sometimes when multiple members line up to interrogate an original poster with a bunch of forensic questions, it can be intimidating.

Several members pointed out, correctly, that accountants need to get to the underlying facts to be able to determine the correct interpretation. I've got that now and want to assure posters and commenters that you can post questions here.

The point we emphasise when intervening in threads is that nature of the subsequent questions does affect how threads develop, so we are asking people to exercise a bit of judgement and consideration. Thanks.

Thanks (4)
Replying to John Stokdyk:
avatar
By nick farrow
07th Aug 2020 11:51

Hi John many thanks for this but I am not concerned - I have been very active on Aweb any answers for about 12 years and very early on I made a decision never to say anything rude or aggressive to anyone but simply ignore. I have excellent backup resources at my disposal but I am always v interested to get alternative opinions. I do miss Portia though and i was flattered when he once said to me "I know you know the answer to this Nick"

Thanks (1)
Replying to nick farrow:
ALISK
By atleastisoundknowledgable...
07th Aug 2020 13:02

nick farrow wrote:

I do miss Portia though and i was flattered when he once said to me "I know you know the answer to this Nick"

Serious praise indeed. I once got "your tax planning is a joke, don't answer any more questions"

Thanks (0)
Replying to Matrix:
ALISK
By atleastisoundknowledgable...
07th Aug 2020 12:09

Matrix wrote:

You should look into the BIK rules. I don’t see the point, we aren’t meant to ask questions but I don’t see how the company would get relief on the expenditure if it doesn’t own the property.

I read the OP as ‘company wants to build an outhouse to use as an office, will pay peppercorn ground rent to directors’. In which case I would have said that the £25k would have been deductible, although as pointed out by some in the past, my tax knowledge can be a bit ropey at times.

NB not worded as a question, although I note John’s u-turn.

Thanks (1)
Hallerud at Easter
By DJKL
07th Aug 2020 10:50

Perhaps you ought to consider company loan to H & W (I appreciate s 455), H & W pay for works, get increased rent from company, use this rent to repay loan from company, s455 tax gradually unwinds and only BIK and tax on rental then to be considered.

(Note- the above should not be construed as a question)

Thanks (1)
Replying to DJKL:
avatar
By nick farrow
07th Aug 2020 11:07

Thanks DJKL I agree that would work as well

Thanks (0)
Replying to nick farrow:
avatar
By nick farrow
07th Aug 2020 12:51

actually i suppose an added advantage (or at least not a disadvantage) of the loan approach is that the P11D notional beneficial interest may not be incurred as the loan was for a business purpose

Thanks (0)
avatar
By nick farrow
07th Aug 2020 10:50

thanks Matrix - the directors are not looking for tax relief on this expenditure - they are looking to avoid paying tax on a dividend that would otherwise need to be extracted to create the office

Thanks (0)
avatar
By frankfx
07th Aug 2020 14:47

https://www.taxinsider.co.uk/company-directors-converting-part-of-their-...

Hope the above triggers thought.

Perhaps the above article contents could be chewed and digested.

What is recent practical experience?

Post / during covid 19 there may well be a swell of demand for assured guidance on the this subject.

Thanks (1)
avatar
By Tax Dragon
07th Aug 2020 15:42

Am I being thick?

Why are they paying the company rent?

Thanks (1)
Replying to Tax Dragon:
avatar
By Tax Dragon
07th Aug 2020 15:43

(PS Please don't answer both questions!)

Thanks (0)
Replying to Tax Dragon:
avatar
By nick farrow
07th Aug 2020 15:58

the Company pays the directors rent under an informal licence cost to cover the incremental costs the directors incur on providing an office in their home - it is essential a tax fee extraction i.e. a Use of Home claim

Thanks (0)
Replying to nick farrow:
avatar
By Tax Dragon
07th Aug 2020 16:08

So your OP

nick farrow wrote:

The directors occupy the home office under an informal licence agreement whereby they pay the company £1,800 per year rent.

was a little misleading.

Thanks (2)
Replying to Tax Dragon:
ALISK
By atleastisoundknowledgable...
08th Aug 2020 08:08

Tax Dragon wrote:

So your OP

nick farrow wrote:

The directors occupy the home office under an informal licence agreement whereby they pay the company £1,800 per year rent.

was a little misleading.

TBF, I wrongly read that the right way. (ie how it was meant)

Thanks (0)
Replying to atleastisoundknowledgable...:
avatar
By Tax Dragon
08th Aug 2020 09:27

How? I get that people didn't notice John S's accidental double negative, but however I look at it (even squinting), I can't see Nick's statement the "right" way round.

Do we need Portia back, to adjudicate?

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
08th Aug 2020 10:06

(There's a serious point behind that remark. I was about to spell it out now, but even I am getting tired of the sound of my own typing in here. So I'm hoping it was sufficiently clear to the reader as well as the writer.)

Thanks (0)
Replying to Tax Dragon:
avatar
By nick farrow
07th Aug 2020 15:58

the Company pays the directors rent under an informal licence cost to cover the incremental costs the directors incur on providing an office in their home - it is essential a tax fee extraction i.e. a Use of Home claim

Thanks (0)
Replying to Tax Dragon:
avatar
By nick farrow
07th Aug 2020 15:58

the Company pays the directors rent under an informal licence cost to cover the incremental costs the directors incur on providing an office in their home - it is essential a tax fee extraction i.e. a Use of Home claim

Thanks (0)
avatar
By Gone Sailing
10th Aug 2020 15:56

So the company pays for the office, and also pays "rent" for it.
The "rent" isn't "rent", it's a reimbursement of additional household expenses, presumably expensive utilities etc., and will not go on a Self Assessement?

No BIK because not used for private purposes, irrespective of who owns it?

The company doesn't get tax relief, because it's capital, (L&B).
Company buys it to avoid drawings and dividend tax.
Still haven't established who owns it.

Thanks (0)
Replying to Gone Sailing:
avatar
By Tax Dragon
10th Aug 2020 16:22

I agree the plan looks messy in the extreme (who owns what etc). I agree that the payment of £1,800 is taxable as rent (there would be deductions), or else needs to be considered under employment income rules (reimbursement).

Actually, I agree most of what you say, except perhaps:

Gone Sailing wrote:

The company doesn't get tax relief, because it's capital.

We remain in agreement if the £25k is a distribution. But if it's taxable as the directors' employment income (and no-one in this thread has explained why it wouldn't be), then the company probably is due a deduction. (I recall that Portia - or possibly VNN by the time of the post I am thinking of - set out the basis on which it didn't matter that the cost might otherwise appear to be capital, if it formed part of the employment income of the recipient. I don't recall that basis, but I don't remember it being particularly hard to work out.)

Irrespective of the above, there are CGT issues pending as discussed here: https://www.accountingweb.co.uk/any-answers/cg64663-room-with-business-u...

Thanks (1)
Replying to Tax Dragon:
Hallerud at Easter
By DJKL
10th Aug 2020 16:36

Tax Dragon wrote:

(I recall that Portia - or possibly VNN by the time of the post I am thinking of - set out the basis on which it didn't matter that the cost might otherwise appear to be capital, if it formed part of the employment income of the recipient. I don't recall that basis, but I don't remember it being particularly hard to work out.)

Is it not akin to beauty being in the eye of the beholder- irrespective what the recipient of the earnings uses the funds to achieve (building a capital asset for him/her self or otherwise) the employer merely has a W & E employment cost; effectively the key is from whose direction does one view either the expenditure or the income?

Thanks (0)
Replying to DJKL:
avatar
By Tax Dragon
10th Aug 2020 16:44

That's not how ex-PNL put it (I remember more statute and less beholding), but yeah I guess in the OP's situation, the company is not acquiring an asset (Nick? Would you agree?), just paying its staff.

Thanks (0)
Replying to Tax Dragon:
My photo
By Matrix
10th Aug 2020 16:42

Portia/VNN used to just answer posts literally.

If someone asked if a payment was deductible for corporation tax purposes the answer would often be Yes. While there may be payroll, BIK issues which offset the benefit of the deduction, these did not alter the validity of his/her answer.

Thanks (0)
Replying to Gone Sailing:
My photo
By Matrix
10th Aug 2020 16:38

If there have been improvements to the taxpayer’s home a BIK could arise as in Denny.

Unless of course the expenditure has been treated as employment income as in TD’s reply to this.

But I thought Nick was trying to get the company to pay to avoid a personal tax bill, although he didn’t say if he had looked into the BIK point I made in my original reply.

Thanks (0)
avatar
By Gone Sailing
10th Aug 2020 16:46

frankfx wrote:

Post / during covid 19 there may well be a swell of demand for assured guidance on the this subject.

Yes I have one on the go, hence the interest.
May need to bring higher rate into the equation.

Thanks (0)
avatar
By Calculatorboy
11th Aug 2020 06:23

Is this really a licence ?
If building wholly business , could be leasehold improvements for company,
Then issue of landlord/ tenant and the compensation for improvements nut .
This should be in a legal forum , once legal form is established tax and accounting consequences will fall out of that

Thanks (0)
avatar
By nick farrow
24th Aug 2020 11:59

sorry everyone I have just spotted how ridiculous I was being - of course the directors do not pay the company rent for use of home but the opposite applies - the company pays the directors rent - I cannot believe I did not see that

Thanks (0)
Share this content