Tax treatment of fitting out home office.

Baby boomer

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I work mostly from home as owner-manager of my own company. I am about to get a proper fit-out job done on my home office room. Built in shelving, filing cabinets, desk, drawers, lighting, electrical and data trunking, that sort of thing.

I presume I can use company funds to pay for this without incurring a personal BIK charge?

And from the company's accounts, it is treated as a capital allowance at 12.5%pa over eight years. Is this correct?

Finally, is there any exposure to CGT for what will be an enhancement to the house and a slight increase in value?
 

Marc

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There is a specific provision for a 5% BIK here

You can depreciate the cost on a 12.5% straight line basis so that after 7 years the BIK falls away.

As a small business owner myself I’m personally interested in this and I set out this idea and other tax efficient planning in my guide for small business owners


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
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Baby boomer

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Thank you Paul and Marc.

Paul, from the Revenue e-working document: "Additionally, the provision of other equipment, such as office furniture, etc., by the employer to enable the employee work from home will not attract a BIK charge, where the equipment is provided primarily for business use." Seems fairly clear. I presume it applies to employee directors as well as non-director employees.

Marc, I don't quite understand what you mean. Are you saying that in year one there's a 5% BIK charge on 100% of the cost, reducing to 5% of 87.5% of the cost in year 2, and so on? If so, what's the basis for the 5% charge? The only reference I can find (via Google) to a 5% BIK rate is for the private use of commercial vans.
 

cremeegg

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Another question to consider is if you are creating the possibility that the local council could make an assessment to rates ?
 

Brendan Burgess

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BB

How much is this fitout going to cost?

It would be a lot simpler just to pay it yourself and not claim, if the amount is relatively small.

If you are spending a large amount, then maybe claim it.

But beware the rates issue and the cost of tax advice. And the hassle of a tax audit if you get one.

Brendan
 

Baby boomer

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Total cost will be about 5k. I've no particular reason to fear a tax audit. My business accounts are very straightforward - a few regular corporate customers who are invoiced monthly and pay by EFT to my business bank account. I use the same account to pay business expenses and transfer my "salary" to separate personal account. Expenses are very low as a percentage of revenue and there's nothing dodgy going on.

Hardly an issue to raise a red flag, I'd think.

As for the issue of rates, I understand that a room used as a home office does not generate a business rates liability. Might be different for a stand alone setup such as Shomera type garden building.
 

Brendan Burgess

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For the funding and tax relief on €5k, I don't think it's worth it.

Although your business is completely clean from a tax point of view, they would probably interest themselves in the €5k spent on facilities in your home. It's just better to have no complications at all.

How much do you save by putting it through the company?

Brendan
 

Baby boomer

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I don't see how it's not "worth" doing. Either I take a 10k salary lump and pay with my 5k after tax. Nett to me = zero. OR the company pays 5k and I take a matching 5k less in salary, cumulatively, over the period of the capital allowance. The remaining 5k (or 2.5k after tax) spread over the period is my net benefit from doing it like that.

And if the taxman does interest himself? He comes out and can see with his own eyes 5k worth of good quality office fit-out. With receipts for everything. Is that really such a complication?
 

Brendan Burgess

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So, are you saying that you will be €500 a year better off over 5 years?

I am just a great believer in keeping things simple. You won't need to make tax calculations. If you move home or change the stuff, you won't need to worry about it.

Brendan
 

Baby boomer

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For €500 pa or €2500 in total, I'm more than happy to do a few calculations! (Actually I think it's €312.50 pa X 8 but the principle is the same.)

If I had 5k of medical expenses, third level fees, nursing home costs or any other allowable items, I'd certainly claim them. Why should I not claim a perfectly valid capital allowance?
 

Paul O Mahoney

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There is one consideration that may or maybe not cause a further complication and it's in relation to someone taking the view that the office would become a commercial unit, and as others said rates from LEA, but if a time came where you decided to sell the house would their be capital gains tax implications ?

I'm not sure if this is valid but my wife essentially works from home but is a Paye employee and I thought about any tax implications of that and I simply decided not to change the fact the it's our home and for tax our PPR.
 
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