Company directors converting part of their house into an office - reclaim the VAT
Sadly Steve Allen died in July 2011. His wife Leah would like to thank all those who know Steve and helped contribute to his success. She has recommends Steve's clients and anyone who is interested in this article topic to contact Rob McCann from “The Vat people” on (tel) 0161 477 6600 . Please make reference to Steve Allen.
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With more and more people now choosing to working from home, the
question of what can be done with the VAT on the conversion costs is becoming a
common issue. In this article, we explain what the rules are, and how you can go
reclaiming that VAT.
Example The Managing Director of a company, Mr Jones, works
from home a lot, and is considering having his loft converted into an office to
give him more room. The office will contain the usual computers, desks, etc.,
and be decorated and furnished in line with the proposed use. The full cost of
the building work, decorations and equipment will come to £20,000 plus VAT which
the company will pay because it will all be used for business purposes. The VAT
on the work and equipment will come to £3,000, and Mr Jones wonders if the
company can recover this.
Classic solution The normal answer is that the company can
recover the VAT on the equipment, as they own it, and it is for business use.
However, the VAT on the building work and decorations cannot be recovered
because, prima facie, it is specifically blocked by the VAT
legislation (s.24 (3) and (7), VAT Act 1994). This states “where
a company purchases, acquires, or imports goods or services which are used or to
be used in connection with the provision of domestic accommodation by the
company for a director, those goods or services are not treated
as used or to be used for the companies business, and any input
VAT is not recoverable”.
Tip There is a little known (even to HMRC)
concession to this rule that allows the recovery of input VAT in certain
circumstances. HMRC’s published and internal guidance states “Where a
domestic room or rooms is put to business use, you may agree to an apportionment
using an objective test to the extent to which the room is put to business use”
(HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,)
This means that if Mr Jones can show HMRC that he
intends to use the loft conversion for entirely business purposes, then the
company will be able to recover the VAT on the building work and materials. If
he can show that the carpets and decorations are for a business purpose as well,
than the company will be able to claim that VAT back too. The staff dealing with
VAT written enquiries are more experienced in this area than normal VAT
Officers, and have more time to consider the matter without the pressure to make
a quick assessment. If you make a reasonable case, you should have no trouble
getting the VAT back.
The same principle used in this article would also apply to
extensions, garage conversions, and even using a shed at the bottom of the
garden as your office. Provided there is genuine business use, and the purchases
and decorations are in line with the proposed use, the VAT should be recoverable
by the company.
About the Author
Steve Allen is the
Director of VAT Solutions (UK) Ltd, an established independent firm of Chartered
Tax Advisers, formed by Andrew Needham and Steve Allen. Both not only are
respected tax advisers, but have worked for both Customs & Excise and one of the
top four accountancy firms for many years. This mean that their team know both
sides of the equation and are truly experts in this field.
The company has a cross-section of clients from multi-national companies
through to medium-sized and numerous smaller regional firms of accountants and
solicitors. They produce a regular publication 'VAT Voice', which can be
downloaded directly from their website
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Article Published/Sorted/Amended on Scopulus 2009-07-07 12:23:46 in Tax Articles