Can I claim my loft conversion through my business now that I am working from home?

2020 was a year defined by working from home. Kitchen tables, bedrooms, dining rooms – you name it, people were working wherever they could carve out some space. With children at home too, it quickly showed the space squeeze on many families.

This realisation precipitated a dramatic rise in home improvements. The UK spent £39 billion on home improvements during the pandemic – up 12% on 2019. And much of this was down to the sheer necessity of needing extra space.

And when extra space is needed, many people look to either an extension or a loft conversion. But what are the rules if you convert your loft into an office? Can you claim that money back through your business?

Every business is eligible to claim expenses for the running of it – from stationery and technology to home office costs, including lighting, heating and internet. This helps you to reduce your overall tax bill, but there are strict stipulations when it comes to converting rooms in your house for business use.

Claiming loft conversion costs
Claiming loft conversion costs

Get clear on the rules before you start

There are ways to claim some money, but not all of it, back through HMRC if you decide to convert your loft into an office. If you are just converting it into an extra bedroom, and you might work from it occasionally, then this isn’t going to be enough to warrant any claim or expenses.

This means you need to be clear in your mind what is and is not acceptable before you start the building project. For example, if you are VAT registered, you can claim the VAT back on the building expenses, if your conversion will be used purely as an office. But you can’t claim the entire building costs as an expense. So bear in mind that you will still have to pay out of your own pocket for the majority of the work.

You can, however, claim as a business expense things that you might need to furnish your office, such as furniture, filing and technology, so long as you are only using that room as an office.

Consider the long-term implications

Before you start clawing back VAT, it is worth considering the longer-term implications of having a sole-use home office. Once you create a dedicated home-office space, and you are working there on a regular basis, you’re opening up the possibility of having to pay Capital Gains Tax when you sell your property in the future.

The current regulations are being reviewed by the Treasury, in part because of the increase of individuals and small businesses now working from home, but for now the rules are clear. It is worth considering whether what you get back in the short term from VAT claims and expenses would be cancelled out by the prospect of having to pay Capital Gains Tax in the future.

Consider alternative options

Some people consider renting their loft space out to their business, effectively giving you a rental income from your business which could help to offset some of the costs of the conversion. But this route can be complex, and you may find it’s not worth the additional hassle as you will have to pay tax on any rental income personally through your Self-Assessment return.

You also need to consider whether this option is financially viable for your business, and it has to be a realistic rental figure – you can’t pay yourself an over-the-odds rental rate each month to recoup your building costs.

If you are considering creating a loft conversion to use as an office, it will take some careful planning to decide which options are right for you. If you decide to turn it into a multi-purpose room, then all the usual expenses claims for running a business from home still apply, so you may decide that it is easier to keep it simple.

As always, if in doubt, you should seek professional advice from a chartered accountant.

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