VAT and working from home
If your business has a home office or is run from home, it is entitled to claim back VAT on any legitimate business expenses incurred. If your business incurs extra costs by operating it from home, you can reclaim the VAT on those costs plus a proportion of your house/flat running costs.
Case study: utility costs at home
Andy operates his business from home and the domestic office takes up 20% of the home’s floor space. He will be allowed to reclaim 20% of the VAT on the utility bills from HMRC through the company’s VAT Return.
Remember: You must keep records to support your claim and show how you arrived at the business proportion for a purchase (e.g. use of floor area, number of rooms). You must also have valid VAT invoices in case of an HMRC VAT inspection.
VAT on additional costs
In addition, a business may pay for other legitimate business costs, such as costs for decoration and office furniture, carpets.
You must make sure the bills are in the company’s name and paid for by the business. As a sole trader or partner, HMRC accepts that you and the business are one and the same.
However, directors must make sure the bills are in the name of their company. If that’s not the case, then HMRC accepts claims made through the Directors’ expenses, so you can still claim of these costs. In that regard, a director can claim a fair proportion of such costs on their monthly expenses claim, even if the bill is not in the company’s name. However, Directors must also reimburse the company for private use to avoid tax and NI contribution issues.
As increasing numbers of people are choosing to work from home so is the demand for home extensions and conversions. Many more people are asking what can be done with VAT on the conversion costs.
Jennifer’s needs more room to run her business at home. She decides to build an extension to allow sufficient space for her business. The office will include computers, desks etc. and be decorated and furnished in line with the proposed business use. In this circumstance the VAT on these costs can be reclaimed. If the work is done through a limited company, make sure the invoices are addressed to the business.
Remember: if your business is run at home, it can claim the VAT on direct business costs and fair and reasonable proportion of joint business/private costs.
For further HMRC information on VAT reclaims visit https://www.gov.uk/reclaim-vat
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Disclaimer: This resource is provided as a guide only and we recommend seeking professional accounting advice before making decisions. Use of this guide is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.