Tax and building a workspace at home

Homeworking

Tax deductions for homeworking have long been a bone of contention with HMRC, especially for employees. However, Antonia is not employed; she is a sole trader who currently runs her childminding business from a local hall. Unfortunately for her the hall is soon to be demolished. Rather than find new accommodation to rent she’s having an extension added to her home from which she’ll operate the business. The cost is significant but as she intends to use it for the business for many years so it will be cost efficient in the long run. What’s more, the extension will increase the value of her home. It seems like a win-win, even more so if she can get tax relief for building the extension.

Capital expenditure

The bad news is that the cost of the extension is capital expenditure and the tax rules specifically prohibit a deduction when calculating taxable profit. However, she read on HMRC’s website that, since 2018, a different type of tax deduction could be claimed for constructing or extending a building used for business.

The SBA

The structures and buildings allowance (SBA) can be claimed as a capital allowance (CA). However, the SBA rules contain a clause which specifically prevents allowances for a building which is for residential use. The rules specifically deem a structure or building to be in residential use if it is situated on land that is or intended to be occupied as a dwelling - even where in practice it’s used only for business purposes. However, there is some good news.

In our example Antonia is entitled to a tax deduction under the CAs rules for equipment (plant and machinery) that is attached or contained within the extension.

Capital allowances other than the SBA

CAs can be claimed for the cost of equipment which the tax rules specify as “integral features”, and for other general plant or machinery contained in the extension.

Integral features. These are electrical systems (including a lighting system), cold-water systems, space or water heating system, e.g. radiators, a powered system of ventilation, air cooling or air purification, lifts and escalators and solar shading (and solar panels).

Other plant and machinery. In addition to integral features our taxpayer is entitled to CAs for the cost of other plant and machinery affixed to the extension. This, e.g. includes shelving and seating, safety bars and handrails.

CAs can, of course, also be claimed for free-standing equipment used in your business, e.g. tables, chairs, etc.