If you run your business from any sort of premises, even a spare room, at some point you are likely to have to spend money on it. Many would assume that this would all be an allowable expense when it comes to tax, however there are pitfalls to avoid and simple steps you can take to ensure you get the best tax benefit from it.
The simple rule is you want the expenditure to qualify as a repair according to the tax rules and not an improvement.
The cost of a repair is used to reduce profit in the year in which it is incurred, unless an improvement qualifies as plant and machinery you will end up waiting until you eventually sell the property to get the benefit.
So if you can’t ‘improve’ the building why would you spend money on it? The key is in HMRC definition of ‘improve’. There have been many cases testing exactly what is meant by improve, but in general if you are adding something that wasn’t there before or is of better quality it is likely to be an improvement. If you are replacing something like for like or with a modern equivalent then it is a repair.
As mentioned above, some improvements may qualify as plant and machinery and so be eligible for capital allowances these include wiring, sprinkler systems, burglar alarms and partition walls but only where they are moveable. This means there will be some deduction available against tax for these irems.
The final situation to look out for is when converting a building which has been empty for over twelve months but which had previously been used for the purposes of a trade or profession. In this case relief is available at 100% under the business premises renovation allowance.
In general the advice is to consult your accountant before you start and ask the builder to identify the costs of different elements separately.