Planning an Office Renovation: There May Be Tax Considerations

Posted on 11th October 2022

With many businesses practising hybrid working, many are taking the opportunity to update or renovate their office spaces to make them fit for purpose and attractive to the workforce. However, they may not be aware that much of the cost of the renovation could be eligible for tax relief under the capital allowances regime.

With the ‘super deduction’ deadline of 31^st March 2023 fast approaching, it is important that businesses make strategic decisions now that could potentially save them money.

While minor decorative or cosmetic works, such as painting walls, are likely to be classed as revenue in nature, rather than capital, any capital renovations that are directly linked to the function of the business, for example, updating IT equipment or new furniture will qualify for tax relief under the capital allowances regime. Furthermore, eligible expenditure will also qualify for the Annual Investment Allowance (AIA), which gives businesses 100 per cent tax relief on their expenditure up to a value of £1 million.

The capital allowances regime has several categories providing different amounts of relief.

Main pool capital allowances offer tax relief for items that are moveable or classed as ‘plant and machinery’, including equipment such as televisions, computers, and furniture. Anything that is classed as a ‘main pool’ capital allowance qualifies for the 100 per cent AIA up to an annual limit of £1 million and then 18 per cent writing down allowances thereafter.

Expenditure may also be eligible for the super deduction, which gives businesses 130 per cent tax relief provided certain criteria are met, although this will end on 31^st March 2023.

There is also the ‘special rate pool’, which includes features that are integral to a building, such as lighting or air conditioning. These items will also qualify for the 100 per cent AIA up to the annual limit of £1 million limit and 6 per cent thereafter.

In addition to the above, the structural and building allowance was introduced in 2018, under which expenditure on structural renovations, such as reconfiguring walls, qualify for three per cent tax relief per annum. This allows claims for builders’ fees, as well as professional fees for the design of the renovations. However, it is important to note that while some legal and administrative fees may qualify for this relief, planning permission is not eligible.

Although there is not a time limit by which companies can claim capital allowances in general, any claims for AIA and super deduction must be made in the tax return in which the expenditure was incurred. Companies then have two years following their financial year end in which to amend a corporation tax return and include a claim for these first-year allowances. Any claims made after this time will have a much lower return. For example, claims for main pool allowances will only receive 18 per cent tax relief per annum, which means it will take much longer to obtain full tax relief.

Consulting a tax professional for advice at an early stage will allow businesses to get the information required to make a successful claim. Creating and maintaining a detailed report of scheduled works will provide all the information needed to file a claim for tax relief efficiently and accurately, making for a smoother process overall.

Businesses should remember that most of the costs associated with office renovations do qualify for some form of tax relief. Completing a claim as early as possible will enable businesses to make the most of the allowances available; realising value and realise value for improving workspaces at the same time.

Natasha Spicer, tax specialist at accountancy firm, Menzies LLP