Freelancers' Questions: Can my company pay to kit out my office?
Freelancer’s Question: Is it permissible for my limited company to pay for an entire home office set in a new house I’m about to move to?
I work from home all the time (but have an office belonging to my primary client that I can use), and the new property I’ve bought has a second bedroom in the loft. I will strip out the loft and convert it for use as a dedicated office.
I have a similar set-up at present but because I’m moving, I would like my company to expense or completely purchase a new fitted and extendable desk, a matching chair and units, a PC station and a separate work station for physical items/materials. What is the least taxing way to make this purchase?
Expert’s Answer: Providing that you are using your home office solely for business purposes it would be advisable for the company to buy the office furniture / equipment and make it available for you (and potentially any other employee of the company), to use for company-related activity.
The cost of the equipment will be a tax-deductible expense for the company (by claiming the investment allowance) and as a result there will be a corporation tax saving. In addition, providing you use the equipment solely for business purposes you will not incur a benefit-in-kind charge and as a result, there will be no personal tax implications. This would be the most tax-efficient way of fitting out your new home office. HM Revenue & Customs is unlikely to have any reason to challenge this.
My only caveat concerns any structural / refurbishment costs incurred relating to the loft prior to the installation of the office furniture. The company can pay for structural / refurbishment costs; however, they do not attract tax relief as they are a setting of the business and are capital in nature. In addition, HMRC may consider that there would be a duality in purpose in respect of any loft conversion (arising from the fact that your loft is in your personal home). However, if this is a designated business space then it is unlikely that HMRC will challenge this.
If you are registered for VAT under the Flat Rate Scheme (as most freelance contractors are), you can reclaim the VAT on any single purchase of capital equipment with a cost of more than £2,000 including VAT. If you purchase a number of assets at the same time from the same supplier, then as long as the total purchase price exceeds £2,000 you can claim the VAT element. If you are operating the standard VAT scheme then you can claim the VAT element on whatever the value of the expense. However, normal VAT rules apply with regards to being in receipt of a valid VAT invoice, held in the company name etc.
You may also wish to consider claiming some of the costs personally incurred in heating and lighting the home office. As this would represent you as the employee claiming the costs (rather than the company incurring business costs directly) there are some restrictions to this. HMRC currently allow employees who have a genuine requirement to work from home (and are not simply choosing to work from home) to claim an allowance of £4 per week to cover the costs of heating / lighting etc. An alternative approach would be to calculate the proportion of costs incurred which relate directly to the use of the room as a home office. HMRC will generally accept a reasonable calculation made on this basis. There are however some perhaps unexpected implications to consider such as capital gains tax implications relating to the property not being used solely as your main residence, potential issues regarding home insurance and potential business rates implications.
In summary, and to answer your original question, the company can incur the costs of refurbishment / equipment required to furnish and equip the home office and achieve a corporation tax deduction and not trigger a personal tax charge providing the equipment is used solely for business purposes. Any costs incurred by the company in structural changes to the property will not be allowed. Addition claims may be made for personally incurred expenditure relating to heating and lighting costs, however there are restrictions to this and potentially other implications, so you are advised to consider seeking further advice before making these additional claims. Bear in mind, in practice, many freelance contractors choose not to claim for the heating / lighting costs given these restrictions versus the potential tax saved. Good luck with the move.
The expert was Matt Fryer, senior compliance manager at accountancy firm
13th July 2015