Dilemma! Home office owned by my limited company

[JennyWills]

Hi everyone, I’m new here so bear with me . Myself and my husband own a small limited company doing consultancy work. Back around Covid days we had a garden office built to work from home at a cost of around £20k. The business paid for this but I don’t believe any costs were offset against corporation tax. That £20k is sitting on our balance sheet as a non-depreciating fixed asset under the heading of ‘land and buildings’.

We don’t really use the building as an office any more and we’d like to re-purpose it for personal use. I’m also uneasy about it sitting on the balance sheet in case it ever complicated matters if we decided to move.

How do I stop this being a company asset? Can I just buy it back off the business for £20k? If so then the business will have £20k extra cash (and I’ll have £20k less cash). I’m assuming there’s no corporation tax implications as there’s been no taxable gain? But how do I get that cash back out? Just through the usual mechanisms of wages, dividends etc.? Can the business ‘donate’ the building to me or would that have capital gains implications?

Thanks so much in advance!

Jenny

 

[Paul Kelly ICHYB]

Hiya and welcome.

If the business paid for it, wasn't the cost put through the accounts? Otherwise, how did you account for the expense?

 

[elaine@cheapaccounting]

Presumably the amount was paid to the supplier of the building or was recorded as a Loan from a Director to purchase the building.

The accounting transaction needs to be "unpicked" to know how to account for it.

Do you use a system - if so you can click on the transaction to get more info - or ask your accountant is you have one.

You will also need to check the corporation tax returns to see if anything was offset in the tax comps.

 

[pentel]

The company could sell the redundant garden office to you for a suitable price. It may be that a 5 year old garden office is worth a lot less than £20k. It depends on the structure. Is it demountable / movable so could eb sold to a third party?

 

[DontAsk]

Can I just buy it back off the business for £20k?

A lot less, I would say.

 

[JennyWills]

If the business paid for it, wasn't the cost put through the accounts? Otherwise, how did you account for the expense?

Thank you all! By what I can gather the various costs were accounted as an asset purchase (land & buildings) not an expense.

Presumably the amount was paid to the supplier of the building or was recorded as a Loan from a Director to purchase the building.

Yeah, it was paid from the company to multiple suppliers for various parts of the build. It was just paid from cash that was sitting in the company bank account at the time. There was defo no corporation tax offset as I remember asking about this at the time (we still had quite a high corporation tax bill). Simplified a bit there was £10k to the company who built the foundations and lower brick walls. £6k to the company who built the walls etc. and £4k to the guys who did the roof.

The company could sell the redundant garden office to you for a suitable price. It may be that a 5 year old garden office is worth a lot less than £20k. It depends on the structure. Is it demountable / movable so could eb sold to a third party?

It's completely bespoke and there's no practical way it could be sold to a 3rd party. So lower brick walls with a timber structure and roof on top.

Hope that all makes sense!

 

[Lisa Thomas]

You need to speak to your accountant to ensure you do this properly. There may be director loan account and tax complications to deal with. If you don't have one, and don't find one on here, I can recommend one - feel free to dm me.

 

[UK Contractor Accountant]

Without a formal leasehold arrangement think you will find the building reverts to the freeholder anyway as it is situated on garden land owned by the freeholder.

As for the tax position and P11D taxable benefit issues that's another questions entirely.

 

[DWS]

Hopefully there is a lease agreement in place, that way the Company could pay for the building of the office, depreciate the office over the terms of the lease and claim capital allowances for the fixtures and fittings.
If not it could be the case that the Company has just paid out to have a building built in the garden of the Directors home, along with the tax consequences that come with that.
Did you get advice from an Accountant/Solicitor before the build?

 

[Mark T Jones]

You need to speak to your accountant to ensure you do this properly. There may be director loan account and tax complications to deal with. If you don't have one, and don't find one on here, I can recommend one - feel free to dm me.

This

It's definitely a case that needs dedicated advice from the person who did the accounting rather than forum opinions

 

[Bobbo]

If not it could be the case that the Company has just paid out to have a building built in the garden of the Directors home, along with the tax consequences that come with that.

This is what it's feeling like to me, especially as it sounds like an immoveable structure as opposed to one of these garden offices that can theoretically be disassembled and reassembled elsewhere.

 

[MyAccountantOnline]

Hi everyone, I’m new here so bear with me . Myself and my husband own a small limited company doing consultancy work. Back around Covid days we had a garden office built to work from home at a cost of around £20k. The business paid for this but I don’t believe any costs were offset against corporation tax. That £20k is sitting on our balance sheet as a non-depreciating fixed asset under the heading of ‘land and buildings’.

We don’t really use the building as an office any more and we’d like to re-purpose it for personal use. I’m also uneasy about it sitting on the balance sheet in case it ever complicated matters if we decided to move.

How do I stop this being a company asset? Can I just buy it back off the business for £20k? If so then the business will have £20k extra cash (and I’ll have £20k less cash). I’m assuming there’s no corporation tax implications as there’s been no taxable gain? But how do I get that cash back out? Just through the usual mechanisms of wages, dividends etc.? Can the business ‘donate’ the building to me or would that have capital gains implications?

Thanks so much in advance!

Jenny

Jenny you really will be best discussing this with your accountant. I'd be very surprised if no allowances were claimed - you wouldn't see that from the accounts alone.

Ask your accountant about buying it back from the company at market value.

 

[DWS]

Ask your accountant about buying it back from the company at market value.

What makes you think that the building belongs to the Company?

 

[MyAccountantOnline]

What makes you think that the building belongs to the Company?

The OP stated it was on the company balance sheet so I did make the assumption it was correctly shown as a company asset.

 

[UK Contractor Accountant]

Without a formal lease arrangement ( i don't think there is here) in place then any building on land belongs to the freeholder.

So if the company pays for construction on land owned by the director/employee, this will effectively represent an improvement to the individual’s property and give rise to a potentially substantial benefit in kind (the benefit in kind being the cost to the employer).

The accounting treatment of the expenditure may be correct if the accountants/advisors addressed the lease arrangement & documentation correctly at the start rather than now trying to backdate everything if it wasn't originally considered.

 

[JennyWills]

I had another chat with the accountant and they said when the time comes I simply transfer £20k to the business to buy the asset back. It's technically a pile of bricks and wood owned by the company - it's of no value to anyone else. They said it could technically be bought back at a lower price but that might complicate matters. No corporation tax implications as we've already paid corporation tax on the £20k back before it was built.

Must admit we know of a LOT of businesses who did this around Covid time and every one seems to have handled it in a different way. Most just expensed the whole lot so it was never on the balance sheet as a company asset. Our accountant said that was naughty and they'd get pulled if they were audited. Even for a temporary structure.

Thanks again all!

Jenny

 

[DWS]

I had another chat with the accountant and they said when the time comes I simply transfer £20k to the business to buy the asset back. It's technically a pile of bricks and wood owned by the company - it's of no value to anyone else. They said it could technically be bought back at a lower price but that might complicate matters. No corporation tax implications as we've already paid corporation tax on the £20k back before it was built.

Must admit we know of a LOT of businesses who did this around Covid time and every one seems to have handled it in a different way. Most just expensed the whole lot so it was never on the balance sheet as a company asset. Our accountant said that was naughty and they'd get pulled if they were audited. Even for a temporary structure.

Thanks again all!

Jenny

So is there a lease/agreement in place between the homeowner and the Company?
If not I can not see how there is a Company asset, just because a Company pays for something does not mean ownership, I would have another chat with your Accountant to find out how the build was treated.
At the moment it seems that the Company paid for a Director’s improvement to their property.

 

[eteb3]

Without a formal leasehold arrangement think you will find the building reverts to the freeholder anyway as it is situated on garden land owned by the freeholder.

Depends what you mean by 'reverts', but if I understand you correctly, that's not necessarily true.

From the sound of it the company has exclusive use of the building. On normal principles, that would give it an equitable lease - because the company can exclude even the landlord, and exclusive possession is the hallmark of land ownership.

Whether a court would find that exclusive possession in fact exists, given that the company directors and probably owners are also the freeholders, is another question. There may be caselaw on it, I don't know, but I would be wanting legal advice from a property lawyer as well as advice from an accountant.

 

[Daybooks]

A golden rule that works in most if not all cases is “follow the money”.

A ‘garden office’ is unlikely to qualify as a “wholly, exclusively and necessarily” a business expense. But that is another but relevant issue.

You say you don’t believe any capital allowances have been claimed. It is your Company; ‘belief’ is therefore unacceptable - you have to know the answer.

Not claiming capital allowances suggests a belief it is not a business asset.

If it is not a capital asset then your Company has purchased a personal asset. Your balance sheet should reflect this through a debit to the Director Loan Account not to a fixed asset account. Thus ‘following the money’ a payment was made by the Company for your liability. Thus you owe the Company that money.

Simplistically correct the Company accounts to reflect the payment on behalf of the director(s) and then repay the loan account from your personal funds.

You then have to consider whether any balance on a director loan account is subject to ‘benefit in kind’ on interest or whether S455 tax is due.

Hope this helps put things into context.

 

[JEREMY HAWKE]

This wont complicate the house sales as the asset on the books has no address, serial ,number ,registration number .It was just delivered to your home address
There would be nothing on the deeds of your property or anywhere stating that this construction belongs to anybody else but the house
It may just cause issues with the company

 

[Newchodge]

May I just say that, every time I see the title of this thread on the list, I have a second worrying that the Home Office has been sold by the government to a private company. I wouldn't put it past Starmer or Yvette Cooper!

 

[fisicx]

Just like Gordon Brown selling off the Inland Revenue buildings to a tax haven back in 2002.

 

[elaine@cheapaccounting]

Inland Revenue

Inland Revenue ... now there's a blast from the past. I remember when HMRC were formed to give the tax payer a single vie of their tax liabilities

If only .....