Home Office Upgrades: Can You Claim Tax Relief

As with most topics in tax, the answer is both “Yes” and “No” or, quite simply, “maybe”. Ultimately, it will depend on the type and nature of the works in question.

If the director or employee is simply setting up a home office with furniture, shelves, or storage supplied by the employer company, these expenses can qualify for capital allowances in the hands of the company.

For conversions or wider construction projects, such as turning a new room like an extension or loft into an office, you can also claim tax relief through capital allowances on items like insulation, electrical wiring, and plumbing. See s23 and s33A Capital Allowances Act 2001 (“CAA01”).

If you’re extending your property or converting a loft for personal use, it’s important to note that these construction costs are seen as improvements to the property. While these expenses can be paid for by your limited company, they cannot be deducted from your profits for tax purposes. HMRC will classify these costs as a “setting” rather than a “function” of your business.

Existing decorative items like blinds and curtains are typically considered part of your home. However, if these items relate to a newly created space (like an extension or loft conversion), their costs can be covered by your company as refurbishment expenses, provided the room is used exclusively for business.

Building a Garden Office or Shed

A garden office is generally considered a structure, which means tax relief is not typically available for the planning, building, and installation costs, even if it’s a mobile unit. This doesn’t prevent your limited company from paying for it, but these costs are not tax-deductible.

The Structures and Buildings Allowance legislation in s270CF CAA01 (see also HMRC manual at CA92500) specifically excludes structures built in the grounds of residential property from qualifying for the 3% per annum allowance.

Home Office Running Costs

You can claim additional costs associated with your home office, such as:

• Heating and lighting costs based on the proportion of your workspace.
• Metered water costs related to your workspace.

If you have dedicated services for your office, such as a separate broadband, gas, or electricity meter, you can claim the full cost of these services.

However, general apportionment of the household cost of these items is not permitted. See EIM32815.

Benefit-in-kind Issues

If the company/employer has paid for items to be retained within the “family home”, then any availability for private use would create a benefit-in-kind situation, and an additional income tax charge can apply.

So, if the home office is used as a guest room for family, or if the children are able to use the furniture provided by the company for homework, etc., then this would give rise to a taxable benefit.

Impact on Capital Gains Tax

If you use part of your personal property for business purposes, such as a home office, garden office, or shed, there could be capital gains implications when selling the property.

Section 224(1) of the Taxation of Chargeable Gains Act 1992 (“TCGA92”) states that Principal Private Residence (“PPR”) Relief shall not apply to any area of the property “which is used exclusively for the purpose of a trade or business, or of a profession or vocation”

When this applies, the gain on the disposal of the house is to be apportioned between the part of the house used exclusively for business and the part used as a residence, and CGT could arise on the sale of the ‘family home’ which would not have otherwise been charged.

However, this restriction only applies where there is exclusive use of a room for business purposes. HMRC manual CG64633 confirms that where a room is used only partially for business, then PPR relief can be claimed in full.

The exclusive use test is a stringent one, and you should not usually seek any restriction to relief for a room that has some measure of regular residential use. 

Unfortunately, it is not as simple as merely storing some personal possessions in a cupboard to obtain relief, as the manual page goes on to confirm:

“But occasional and very minor residential use should be disregarded. For example, if a doctor keeps private possessions in a room used as his or her surgery, the surgery should still be regarded as exclusively for business use.”

There is a certain ‘play off’ between the additional income tax charge, which can arise in this situation, and the requirement for the room not to be exclusively used for business purposes in order to avoid the CGT impact and restriction on PPR relief that can apply (see above).

Additional considerations include business insurance and business rates, which may apply if you operate your business from home.

Nick Lovett
Tax Manager

For more information, please contact us at: consultancy@vantagefeeprotect.com