9 December 2019

Most businesses begin small and grow from humble beginnings. In the beginning many a business starts life at the owner’s home, making the most of garage space or a spare room. As the business gains success and grows it often requires separate premises of its own.

Home business considerations

If you’re currently basing your business at home remember to preserve your Private Residence Relief,  so the business does not prevent your home being fully exempt from Capital Gains Tax when you come to sell. Ensuring that no area in your home is used exclusively for business will usually suffice. For example, the garage or outbuilding also stores home/garden equipment, or the home office doubles up as a room for domestic purposes (such as a spare bedroom or study for all the family).

Use of home expenses can be claimed as a business expense to reduce the business’ tax liability. For the self-employed, a proportion of light and heat, mortgage interest, council tax, insurance, utilities, broadband and telephone can be claimed.

For employees working from home, home-working expenses are harder to claim with the approved allowance being a meagre £4 per week, although itemised business expenses such as telephone calls can be claimed.

Purchasing or improving business premises

A new allowance which applies to all businesses is the Structures and Buildings Allowance. It relates to expenditure on or after 29 October 2018 on the purchase or improvement of business premises.

For those who have recently (or have plans to) purchase or improve their business premises, a successful claim will give an annual allowance of 2% of the qualifying expenditure. This then used to reduce the annual taxable profit figure of the business by that sum for up to 50 years.

To qualify for the Allowance, the premises must be taxable in the UK and used for a qualifying activity, such as:

• Any trade, profession or vocation
• A UK or overseas property business (excluding residential property and holiday lettings)
• Managing the investments of a company
• Mining, quarrying, fishing, and other land-based trades such as railways and toll roads

Constructions costs which count as qualifying expenditure for the Allowance include:

• Fees for design
• Preparing the site for construction
• Construction works
• Renovation, repair and conversion costs
• Fitting out works

Be aware though that the following expenditure is excluded from the Allowance:

• A residence or structure in the grounds of a residence
• Costs that also qualify for plant and machinery allowances
• The cost of the land and integral features and fixtures
• The costs of financing, legal expenses and  planning permission
• The cost of landscaping or land reclamation
• Costs for which you received a grant or contribution

To apply for the Allowance, your business needs to submit an SBA statement to HMRC that identifies:

1. the structure concerned and confirms the date of the written contract for construction,
2. the qualifying expenditure and
3. the date you started using the structure for your business.

Bear in mind that the passing on of this statement allows subsequent owners of the structure to continue the claim.

When disposing of the property the Allowance your business received is added to the proceeds received, which may increase the tax payable on a Capital Gain. For companies the same tax rates apply to profits and gains, however the self-employed are likely to benefit most with the tax rate on non-residential gains being lower than income tax on profits.

Can we help?

If you are outgrowing your current business premises and want to plan how to accommodate its next growth phase, please contact us for advice on financing and making the most of the tax allowances available.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

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