What are the tax issues related to a Home Office?
31st Aug 2016
Business | Tax
Working from home is an attractive option for business owners and employees. Assuming you need to create office space, you could either convert an existing room, loft, or garage or build a new structure in the garden.
1. Estimate the amount of Business & Personal Use – you can only reclaim VAT on the Business Use proportion – you might have 100% business use if you were building an office in the garden. HMRC’s published and internal guidance states, “Where a domestic room or rooms are put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33).
2. The invoice should be in Business Name.
3. You can reclaim 100% VAT on Office Equipment used entirely for business purposes(if you reclaimVAT you need to chargeVAT if you sell the equipment).
4. If you then sell your home to a buyer who wants to use the premises as partoftheirdwelling, youdon’t charge anyVATasitwillbe exempt.
Benefit in kind:
Directors and Employees who have personal use of the assets will incur tax as it will be a benefit in kind. So it might be better to keep business assets for business use only to avoid this tax.
You can claim a proportion (based on the number of rooms and hours of business use) of your household expenses
You can draw up a home rental agreement to reclaim these costs or claim expenses, or if the use is minimal, you might find it easier to claim £4 per week as suggested byHMRC.
Mortgage interest or rent
Repairs and maintenance
Building and contentsinsurance
Gas, oil or other heating costs
Telephone (based on usage)
Yourprincipalprivateresidenceisexemptfromcapitalgainsbut your home office won’t be if it's exclusively used for business, but it will only be a small proportion of the property value, and as such, any gain will probably be covered by your annual allowance £11,000 (2016/17) if you are a sole trader or partner. If not, your company could have a small amount of capital gains tax to pay if a gain is made. If you are a sole trader or partner, and there is a private use element to your home office, then the office will be exempt.