Reclaiming VAT on household costs

Background

If you are VAT registered and make VATable sales, i.e. they include some zero, lower or standard-rated supplies, you can claim VAT back on most expenses relevant to your business. That includes costs relating to your home that currently you might be overlooking. So, what's covered and what's not ?

Overheads - how much VAT?

Example. John trades as a computer consultant. He uses one of his six rooms solely for business. He can recover some of the VAT paid on household bills, such as electricity, to reflect the business use. John could say that he has six main rooms in his house and so claim a sixth of the VAT on his lighting and heating bills. But, if the room concerned occupies, say, 25% of the property's floor area, John could claim a quarter of the VAT.

Tip. The law says that your calculation of VAT claimable on mixed business and private use costs has to be fair and reasonable. So, consider different ways you could claim a higher proportion.

Decoration costs and furniture

There's no problem claiming VAT back on the costs of making your office a comfortable place to work. This includes the cost of any office furniture, redecoration, carpets and even display items such as pictures on the wall. As always, make sure you get a VAT invoice to support your claim in case you get a visit from the Taxman.

Trap. Although you can reclaim VAT on items you buy to make your home office look good, avoid paintings etc. that might increase in value, as you could end up out of pocket. That's because you'll usually have to pay the VAT on the increased value when you stop using the asset in your business.

Telephone and broadband costs

If you have a separate business phone or broadband line at home, you can reclaim 100% of the related VAT. But if you have only one connection for both private and business, you'll have to make a fair and reasonable estimate of the VAT you can reclaim. For example, 90% of calls are private but are free; conversely, business calls are made at chargeable times and account for 50% of the bill. So you can reclaim 50% of the VAT.

Broader horizons

Tip. You don't have to limit your claim to the household costs we've mentioned. Perhaps you use a cleaning company which also spruces up your home office? Or you store files etc. at home and incur VAT on security costs, e.g. alarms? Put your thinking cap on and see what you can reclaim.

Is there a catch?

Trap. To reclaim VAT on domestic costs they must be paid for by the business. Easy if you're a sole trader or partner as the Taxman accepts that you and the business are one and the same. But directors must make sure the bills are in the name of their company. They must also reimburse the company for private use to avoid tax and NI problems.

If you need any help or advice on VAT, dont hesitate to get in touch to organise a free initial meeting 0191 386 4786

Reclaiming VAT on household costs

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