my client uses her home for work (limited company), she had a separate room, but now that she thinks of employing someone full time, she hired a building company to extend that room, make a separate entrance, toilet and a little kitchennette.
Can the company claim cost of the works done as a business expense?
Can the company claim cost of the works done as a business expense? > No.
Might sound harsh, but take it one step further. Imagine your client bought a completely separate building to run her business from. How much could she claim for that? Nothing.
If it's been paid for by the company then it needs to be posted to the DLA in Sage.
Thank you. That is what I thought, but I also know the company's accountant, who is a big fan of "repairs and renewals" account, and I've seen similar expenses posted there, hence my question, just to be double sure:)
Thank you again. I may come back with another issue soon:)
I'm not so sure about this case being DLA territory.
We are talking about a self contained office with a seperate enterance so the client must leave their home to enter the office so that surely would pass the wholly and exclusively test. To me that sounds somewhat different to those trying to put a conservatory through the accounts!
What about cases where a dentist sets up a business attached to their primary residence, that would be allowable. Then again, such is a trade rather than an office but I think that you can see my thinking on this one.
The problem as I see it is going to be with the residence having to pay business rates and I wouldn't even want to think about the complications when they come to sell her house as you will be getting into capital gains territory.
Personally I would strongly advise against but do not think that it is cut and dried that the client cannot do this at all.
I'm probably wrong but it's just that bit about it being totally seperate that set me thinking that this project warrants further consideration than the cases that we encounter where someone has just heard from their mate down the pub how to get areally cheap extension to their house!
It is however, certainly not repairs and renewals.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The office can be accessed through the separate entrance as well as from the house. Some house walls were knocked off, to make the space bigger, and within this space there were a toilet and a kitchennette built and the main office room is just bigger. But the house itself hasn't been extended as such, all works were done within the existing building, no building extension. There were also some electrical works carried out.
All works done were intended to be wholly and exclusively for the business purpose, but again, I thought that because it was within a private property and may be also used as an annexe for dwelling purposes...in the future, it should be financed by the house owner (also the director of the company), not the company itself.
That's why I thought I should charge the DLA account for that.
- The build costs - The decor costs - The running costs
There's no problem with claiming running costs and certain decor costs. I read the OP as an extension (..hired a building company to extend that room..), which would not be allowable. Even moving internal walls, putting a toilet in, these are structural things - OK, you could try claiming them, but it all depends upon the circumstances of the claim. My first instinct was that the company was trying it on! :)
If your client was a sole trader, I would have immediately said yes. The last client I had that the HMRC investigated (which was a few years ago, and he sailed it!) spent 65K building a new studio to work in his house/garage and the HMRC allowed all the capital allowances I claimed for the costs, without a murmur. I thought they would question it, as the costs had been incurred in the previous year, and I had not claimed the previous year (when the money was spent) because previously the HMRC had been using stricter use of home rules previously. Of course Capital allowances can be restricted or claimed in later years if appropriate.
The problem you have is this is for a company. The company could pay for it and the costs would then be capitalised, as they would never be considered a trading expense. But then the company would own that proportion of the property, so a proportion of the sale proceeds would later also belong to the company. Then as Shamus says, the council would expect business rates etc.... as your client would have to tell the council it was a business premises to substantiate any potential future problem with putting the costs through the company. Of course then they could then claim the costs for changing back to a residential house when they sold, so the company would not then be entitled to the proceeds from any sale - but again I keep comping back to the fact that these costs would have to be capitalised, and Companies cannot claim any trading costs for tax purposes to do with purchasing or selling buildings. Is it worth the complication and potential implications of putting it through the company?
