Can I Use My Business Funds to Revamp My Home Office? Understanding the Tax Implications
As a homeowner and entrepreneur, I’m in a unique position where my house doubles as my registered business address. Specifically, the small third bedroom is my designated office space. Unfortunately, this room is far from its prime. With peeling wallpaper, no flooring, and the remnants of an old, untreated pine paint spill, it’s not exactly a space that inspires productivity. As a result, I’ve found myself gravitating toward the kitchen table to work, although that also comes with its own set of distractions.
My goal is to transform this third bedroom into a functional office. This would involve stripping the old wallpaper, applying a fresh coat of paint, installing basic laminate flooring or carpet, and perhaps investing in a new desk, chairs, and shelving. I estimate the total cost for these updates would be no more than £1,500. Given that this is a typical UK-sized third box room, the costs are fairly predictable and manageable.
Now, here’s where things get tricky: Can I charge these expenses to my company? The room will be used primarily as an office (90% of the time) and occasionally as a spare bedroom (10%) when guests visit. Is it possible to consider these improvements as business expenses and are they tax-deductible? Moreover, how would these changes impact capital gains tax when it comes time to sell my home, given that I’m not planning any structural alterations?
My creative agency, launched this year, is experiencing rapid growth, and I need a reliable space to work, especially after 3 p.m. when my child returns from school. While I currently don’t have the personal cash flow to cover these refurbishments due to taking a reduced salary during this growth phase, my business account is in a healthy state. This dedicated office space would also accommodate video calls, and allow me to occasionally host freelancers, store essential equipment, stationery, and technology.
However, I find myself at a crossroads due to conflicting information about the tax implications and legality of expensing these costs. I aim to comply with regulations, avoiding any unintentional misuse of funds. Has anyone encountered a similar situation, or does anyone have any advice on navigating this scenario? I simply want to create a decent workspace without shouldering the financial burden personally if it can be avoided through legitimate business channels. Please share your insights!
2 Comments
Hello,
This is a great question and one that’s important for many small business owners who use their home as a primary base of operations. The possibility of your business covering the costs associated with setting up a functional and professional home office can indeed be a legitimate and tax-efficient way forward, provided you adhere to HMRC guidelines in the UK.
Can You Expense the Refurbishment Costs?
Business Use: Since you’re planning to use this space primarily for business (90% for work), you generally can claim the relevant expenses for refurbishing your home office through your company. Items that qualify include costs associated with redecorating, purchasing office furniture, and flooring. However, since there’s a minor portion of personal use (10%), you may need to proportionately adjust the expense claim.
Documentation: Keep detailed records and invoices of all expenditures. Documentation substantiating the business use (like a detailed schedule or time diary) will be essential if HMRC queries the claimed expenses.
Tax Deductibility
Revenue vs. Capital Expenditure: The refurbishment costs you’re describing seem to be a mix of capital and revenue expenditures. Basic redecorating and furniture costs can typically be claimed as revenue expenditures through your business. However, the costs for significant improvements that might be seen as capital expenditures (e.g., structural changes) are treated differently for tax purposes and may require depreciation over time via Capital Allowances.
Equipment and Fixtures: Desks, chairs, shelving, and initial setup costs can usually be deducted as revenue expenses. Make sure any equipment purchased is necessary for business operations.
Capital Gains Tax (CGT) Considerations
Since you’re using part of your home for business, there’s a possibility of incurring Capital Gains Tax when you sell the property. Yet, the possibility remains minimal due to the small percentage of the home’s use for business compared to personal use. Discussing this further with a tax professional would clarify specific implications based on the extent and percentage of business use in relation to your entire property.
Practical Advice
Consult with a Tax Advisor: Tax laws can be complex and subject to change. Engaging a tax advisor will provide tailored advice to your specific situation and ensure you’re compliant while maximizing available reliefs.
Separate Business and Personal Use: If possible, document distinct usage of the home office, particularly if there’s occasional personal usage or guests.
Amortization Strategy: For substantial investments or improvements
This is a great discussion topic, and it’s wonderful to see your commitment to creating an inspiring workspace! Many entrepreneurs find themselves in similar situations, and understanding the nuances of tax implications can be tricky.
To clarify your concerns, it’s generally possible to deduct certain home office expenses if the space is used primarily for business purposes. In the UK, this means you could potentially categorize costs for improvements, like flooring or furniture, as capital expenditures. However, since the room also serves as a guest bedroom, it might create an apportionment challenge. For tax purposes, the 90/10 split you mentioned is a good starting point for determining how much of those costs can be attributed to business use.
It’s crucial to keep meticulous records of all expenses related to the office refurbishments, and consider keeping a detailed log of your office usage versus personal use to support your claims. This could be beneficial if your tax situation is ever called into review.
Also, when it comes to capital gains tax, the improvements made to your home office may affect the calculations upon sale. Typically, expenses that enhance your home’s value can be offset against capital gains, but since the room has mixed use, consulting a tax professional familiar with property and business tax law is advisable to get tailored advice.
Additionally, you might explore the possibility of running a temporary ‘business’ bank account to funnel permissible expenses directly related to your office refurb. This could streamline your accounting, helping to clearly delineate personal from business expenses.