If your limited company rents premises to work from, the rent and most associated running costs will normally be tax-deductible.
This could be a conventional office, a workshop, a serviced office or a desk in a coworking space.
The company can pay the rent, business rates, utilities, insurance and maintenance costs where they relate to the business. If they are allowable business expenses, they reduce the company’s taxable profit and therefore its Corporation Tax bill.
It is worth making the distinction between what your company can pay for and what it can deduct for tax purposes. In practical terms, your company can pay for a wide array of things. The key, when it comes to tax, is whether the deduction is allowable when calculating the company’s taxable profit.
Most standard costs of renting and running office space should qualify. However, a rental deposit and money spent on improvements may need to be treated differently.
Renting an office or other business premises
If your company signs a lease for an office, workshop or studio, the rent will normally be a tax-deductible business expense.
You can also claim the usual costs of running the premises, including:
- Business rates.
- Gas and electricity.
- Water charges.
- Business insurance.
- Cleaning.
- Service charges.
- Repairs and maintenance.
- Security and alarm costs.
There may be other costs depending on the type of premises you occupy – the costs of operating a workshop, for example, will be different from those you’d incur renting some office space in the town centre.
However, most ordinary costs which relate directly to running a company’s premises will be tax-deductible.
Serviced offices and coworking spaces
Similarly, you might rent a serviced office or use a coworking space.
The monthly fee will often cover internet access, electricity, cleaning and other services as well as the workspace itself.
If you pay a single charge for the entire package, the company can normally deduct the full cost from its taxable profits.
The same applies if you hire a meeting room for a client meeting or another business purpose.
Sharing an office with another business
If you share an office or other premises with another business, your company can deduct its share of the rent and running costs.
If each business is billed separately, you can use the amount shown on your company’s invoices.
Where you share the bills, divide them on a reasonable basis. For example, if two companies use roughly half the office each, a 50/50 split of the rent and utilities would make sense.
As ever, keep a record of how you arrived at the split, especially where your company’s share isn’t obvious.
Rental deposits aren’t an ‘expense’
If you decide to rent some office space, chances are you’ll be asked to provide a deposit to cover non-payment or damage.
Unlike the standard expenses covered in this guide, the deposit isn’t tax-deductible when the company pays it because the money should be returned to your business account at the end of the agreement.
The deposit will usually be recorded as an ‘asset’ in the company accounts instead.
If the landlord keeps some or all of the deposit, the reason for the withholding will determine whether the company receives tax relief on that amount.
Repairs, maintenance and improvements
Your company can usually claim the cost of repairs and routine maintenance at its premises.
That might involve redecorating the office, repairing a damaged door, fixing the heating or bringing someone in to carry out maintenance.
If you spend any money on alterations or improvements, the tax treatment may be different, particularly if you’re making substantial changes.
If you spend money altering or improving rented premises, some of the cost may be treated as capital expenditure rather than an ordinary business expense.
Repairing or replacing something that’s worn out will often be treated differently from installing something new or making a significant improvement to the premises.
If you’re having substantial work done, give the invoices to your accountant so they can work out which costs can be deducted from the company’s profits and which need to be treated as capital expenditure.
Furniture and equipment for your office
You can buy the things you need to furnish and equip the workplace, such as desks, office chairs and computer equipment.
How the company gets tax relief depends on what you’ve bought. Smaller items which aren’t expected to last for several years can usually be deducted as normal business expenses.
Items such as desks, furniture and computers are more likely to be treated as company assets because they’ll be used for several years. Instead of deducting their costs as ordinary expenses, the company usually obtains tax relief through capital allowances.
In many cases, the Annual Investment Allowance (AIA) means the company can still deduct the full cost of qualifying equipment in the year of purchase.
We’ve covered this separately in our guide to equipment, tools and software expenses for limited companies.
What if you work from home?
If, like many small business owners, you regularly work from home, your company can pay towards the extra household costs that arise from working there.
However, you can’t simply put part of your mortgage, council tax and other household bills through the company because you use one of the rooms as an office. There are specific methods commonly used for calculating your homeworking expenses.
The amount of tax relief your company can receive will depend on the method you use.
We explain your options in detail in our guide to working from home expenses for limited companies.
Renting part of your home to your company
You can also charge your company rent for using part of your home as an office. However, you should seek professional advice before going down this route, as there are several factors to consider.
You should have a rental agreement between you and the company, and the rent should be reasonable for the space used and the amount of business use. It should not simply be an arbitrary amount chosen to reduce the company’s taxable profit.
The company may be able to deduct the rent as a business expense, but the rent you receive personally is taxable income which you’ll need to declare on your tax return.
Exclusive business use of part of your home can also affect the Capital Gains Tax position when you sell the property.
For these reasons, we highly recommend you check your proposed arrangement with your accountant first.
What about VAT on office rent?
Commercial rent is often exempt from VAT. However, a landlord can choose to charge VAT on the rent by ‘opting to tax’ the property.
If this happens and your company is VAT-registered, it can usually reclaim the VAT it pays on the rent. You may also be able to reclaim VAT on other premises costs, such as utilities, repairs and maintenance, where VAT has been charged, and the normal rules for VAT recovery are met.
Need more advice? Get in touch.
If you’re taking on an office, using a coworking space or paying premises costs you’re not sure about, get in touch with the Integro team.
We can tell you what your company can claim and make sure the costs are treated correctly in your accounts.
Click here to get in touch with the Integro team.
You can also read our complete guide to limited company expenses for more information on the costs you can claim through your limited company.
