January 5th, 2015 / Insight posted in The Sunday Times Business Doctor

Refurbishment can be set against tax

AW writes: My company is leasing a new office, which we are renovating before moving into it. This mostly involves decorating, new lighting and putting up some internal walls. When this is complete we plan to install new furniture. Can the company get a tax deduction and recover VAT on the costs?

The tax treatment will vary and depends on the different elements of the work being carried out. As long as your company is VAT registered and doesn’t have a partial exemption, it should be able to recover the full VAT, writes Jon Dawson, partner at Kingston Smith LLP.

For tax purposes the treatment is split into three main categories.

  • Repairs and maintenance costs come under expenses in the accounts, and a full corporation tax deduction can be obtained. This will cover general decoration and any repairs to existing assets — but not the cost of replacing items such as furniture.
  • Any improvements that qualify as plant and machinery, as well as new equipment including furniture, should be capitalised as fixed assets and be eligible for capital allowances. Integral features such as new lighting systems will also be included in this category.

 

Your company should qualify for the annual investment allowance. This means you will receive a full tax deduction for the first £500,000 spent on qualifying plant and machinery in a tax year. This is due to apply until December 31, when the allowance drops to £25,000 a year.

  • Any expenditure outside the annual investment allowance will attract writing-down allowances of 8% on integral features, 18% on general equipment and 100% for specific energy efficient plant.

 

Certain structural work on the building itself will be regarded as a capital item — but if it doesn’t qualify as plant and machinery no tax deduction is permitted.

You will need to itemise the full work and apply the correct treatment to each category.