I've been asked a lot about tax relief on home offices a few times over the past year as working patterns have shifted.
Let's start with the bad news: -
1) No relief for the actual structure
There is a fairly new tax deduction for structures and buildings but buildings which are part of or on the grounds of a residential property are specifically excluded. There is no tax relief for the basic structure of the build including the base, glazing, and preparatory works. Sorry folks!
EDIT: An accountant colleague alerted me to advice given out by a tax advisor to the effect that if garden space was leased to a company, fenced off so that it somehow was no longer even potentially available for private use and didn't form part of the garden of a residential house then this structures and buildings allowance would become available to the company. There could be an adverse capital gains tax liability, a taxable benefit in kind, possibly stamp duty land tax, and certainly business rates. A home office which is not actually part of the home sounds like a ropey plan to me.
2) Thermal insulation, electrical, heating, water, air-conditioning and lighting systems
Provided that the home office is not used for a property business or for leasing machinery, the installation of the above attracts 'special pool' rate tax reliefs (currently 6 percent per year).
From 1 April 2021 to 31 March 2023 there is a 50% "super deduction" available in the year of purchase - so quite attractive from a tax point of view.
Replacement of single glazed windows for double glazed units is specifically allowed by HMRC as thermal insulation.
Try to get these items detailed out and separately identifiable on the builders invoice to support your claim.
3) Fire and security alarms, furniture, flooring and computer equipment
Normally you can claim full tax relief on these items . HMRC accept claims for lino or carpet floorings. Laminate flooring is not explicitly accepted but the principle that a free floating flooring detached from the fabric of the building is in my opinion allowable.
From 1 April 2021 to 31 March 2023 there is an additional 30% "super deduction" available in the year of purchase - again, very attractive for tax!
4) Running costs
You can claim a reasonable appointment of your domestic premises costs - council rates, mortgage interest, rent, home insurance, electricity, gas, internet and telephone costs as deductions against income.
Reasonable apportionments would take into account the private versus business usage of utilities, or the floor area and business usage time of items like insurance or council tax. For example, if a builder uses the internet for 2 hours a day to deal with customer quotes, place orders at Selco, and write up his books, while his daughter watches Peppa Pig for another 2 hours, a 50% claim for the internet usage would be reasonable. Care and
You can charge the business a flat rate of tenth to yourself personally, include the rent as property income in your tax return, and deduct reasonable apportioned expenses. Alternatively you can simply charge the apportioned expenses directly to the business.
A third option is to claim HMRC's simplified expenses of up £6 per week depending on hours worked.
5) Capital gains and business rates
One of the most important tax exemptions is the exemption from capital gains tax of any gain on your main residence. If an office is of a character - for example, specialised equipment or an office configuration - which would not be of a character typically enjoyed with a residential property then that part of the property's tax exempt status comes into question, as does the question of business rates.
6) Planning permission
If you are going to see clients or have employees in your home office it is likely that you will need planning permission for it. These will likely be problematic features from a point of view of capital gains tax as well.
7) Company business: Benefits in kind
If the structure is paid for and owned by a company, there could be a taxable benefit in kind on making that structure available for private use. It is much better to pay for it personally. The company can pay for most of the fit out costs which attract capital allowances without fear of incurring a benefit in kind charge, and the employee can claim the running costs as a tax deductible expense.
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