Can I write off home/office extension as business expense & Vat

smeharg said:
There's still one :)

There are 2 distinct and separate issues: VAT deductibility and loss of PPR relief from CGT.

A deduction can be claimed for VAT charged in respect of goods/services supplied in so far as they are used for the purposes of making taxable supplies. There's no provision of which I am aware which restricts goods/serivces to be used in or on property owned by the taxable person.

So in theory a deduction could be claimed in the circumstances set out by OP.

PPR relief may be lost if the part of the premises is used exclusively for business purposes. This means that if it is used part business/part personal then there shouldn't be any loss of PPR relief on disposal.

Where the VAT deductibility and PPR relief could interact is if full deduction for VAT incurred on improvements to the premises was claimed, it would be one indication that that part of the premises was used exclusively for business. As the expenditure was incurred by the company it couldn't then be claimed as enhancement expenditure when calculating CGT.

The alternative would be to claim VAT incurred in proportion to business use, which would help demonstrate that there is a non-business element to the use of the premises. Of course, all facts would need to be considered to conclude one way or the other.

In my opinion, it's just not worth it.
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After thinking about it today I had actually intended to come back and alter my position to reflect that it's not as black and white as I was previously suggesting, but you've beaten me to the punch!

The only issue I'm still struggling with is that of the capital goods scheme. If the expenditure creates a capital good, but the taxable person spending the money doesn't have an interest in the capital good, and since the owner of the good is not a taxable person, then how can any input deduction be claimed?

Lets say the OP's hubby gets a lucrative contract and needs a bigger office, so the company vacates the office space next month, how do you calculate the self-supply? Ditto if it's next year, or further down the line? The CGS refers to the "owner" of the capital good, but to me ownership presupposes rights to dispose of the capital good, which the company doesn't have...

I think the bottom line for any lay person reading this thread, is the pretty much unanimous advice is that it's unlikely to be worth making a VAT claim in this type of situation.
 
I think to be fair I was clear that there was a VAT matter and a RESULTING CGT issue - that is how they get related i.e. VAT claim on immoveable,

For a number of reasons - at the very start I suggested I would NOT claim the VAT/

I note now we are all agreeing that it is 'possible' though not recommended.

The ownership issue could arise on an 'equitable interest' which is how the VAT claim could be sustained.

Many thanks for repeating the conclusion we had to come to much earlier on - i.e don't make the claim.

But you can clearly see how interpretation varies from that of a practical business point of view and a sometimes black and white view. Legislative interpretation is an art form.
 
@wizardDr - I thought my post more or less reflected your standing: you could but probably shouldnt'. Whereas Mandelbrot's standing was: you can't.

There was no consensual conclusion reached, which is why I threw in my tuppence worth.

I wouldn't say there would be a "resulting" CGT issue. A VAT claim could influence the CGT position, but there are many other factors which also need to be considered. But that's just splitting hairs.
 
@smeharg what I was thinking is that if the company paid for the work and claimed the VAT back, that they would have to acquire an interest in the property. For if they did not, then Revenue would correctly argue that the owners had derived a benefit from the Company. Hence I argued an equitable interest would need to be acquired by the company to firstly reclaim the VAT and more importantly not to have the extraction treated as remuneration.

Therefore CGT would arise on a disposal as it would be a company making a disposal of its interest.

But as I said at the start - I simply wouldn't go there in the first place.
 
WizardDr said:
@smeharg what I was thinking is that if the company paid for the work and claimed the VAT back, that they would have to acquire an interest in the property. For if they did not, then Revenue would correctly argue that the owners had derived a benefit from the Company. Hence I argued an equitable interest would need to be acquired by the company to firstly reclaim the VAT and more importantly not to have the extraction treated as remuneration.

Therefore CGT would arise on a disposal as it would be a company making a disposal of its interest.
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I think it's my fault we went down that road, and I was as guilty as you of conflating the VAT, income tax and CGT issues.

The issue of VAT deductibility is entirely standalone and as SMeharg pointed out, the right of deduction in relation to a capital good is not dependent on ownership of the capital good - as can be seen by the definition of a capital good owner in the VAT act. As with VAT generally a right of deduction derives from the use of the inputs in the making of taxable supplies.

The income tax and CGT issues are 2 different kettles of fish.

EDIT: Just to add, for reference, the definitions of "refurbishment" and "capital goods owner" from S.63 VATCA 2010:
“refurbishment” means development on a previously completed building, structure or engineering work
“capital goods owner” means… a taxable person who incurs expenditure on the acquisition or development of a capital good,

and from S.2 VATCA 2010:
“capital goods” means developed immovable goods and includes refurbishment within the meaning of section 63(1), and a reference to a capital good includes a reference to any part thereof and the term “capital good” shall be construed accordingly
 
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