Tax Deductible Office Design & Build
If you’re looking for ways to reduce your office fit out cost, tax relief is something you should look at. Corporation tax in the UK is currently at 25%. If you use tax relief effectively, you could save up to 25% of your office fit out costs. However, the regulations are complex and they often change. As a result, many companies don’t make full use of the tax relief available.
Every company’s situation is different, as is every office fit out. There is not a one-size-fits-all solution to minimise tax liability. It depends on the scope of your project, and investments made in other areas of the business.
In this article, we’ll walk you through the 3-step process we use with our clients to help them minimise the cost of their office fit out. By the end, you’ll be able to work with your accounts team to assign your project in the most effective way and save as much as possible.
1) Maximise Repairs
The first step to reducing your office fit out tax liability is to assign everything you can as a repair. Repairs are classed as a revenue expense, which means they are automatically 100% tax deductible. According to the UK government website, “If as a result of the work the asset can simply be used to do the same job as before then it is likely to be a repair and therefore allowable expenditure.”
Common examples of works classed as repairs include HVAC maintenance and office redecoration. It’s also important to note that the “repair” doesn’t necessarily have to be a like-for-like replacement. It can also be a “modern-day equivalent”. An example of this would be replacing single-glazed windows with double-glazed alternatives.
You should assign repairs first because they are 100% deductible – meaning you pay no tax at all on them, and there is no cap on how much you can claim. However, office fit out typically won’t require much work that can be classed as repairs.
2) Use the Annual Investment Allowance
Most of an office fit out won’t be classed as a repair, but an improvement. This means it is not automatically deductible. However, there are a few forms of tax relief applicable to improvements. The most common form of tax relief used in office fit out is the annual investment allowance (AIA). The AIA is a tax relief scheme designated for the purchase of business equipment.
Most assets purchased for business purposes can be claimed as qualifying expenses for AIA. The categories most relevant for office fit out are:
- Office equipment including computer hardware and certain types of software, and office furniture
- Parts of a building referred to as integral features
- Certain fixtures, such as air conditioning, fitted kitchens, or bathroom fittings.
When designating your expenditure, you should use the AIA after repairs. This is because while it is a 100% deduction, it is capped at £1,000,000 gross expenditure. Your project may exceed this value, or the funds may be designated for investments in other areas of the business.
3) Utilise the Writing Down Allowance
The other common form of tax relief used for office fit outs is the writing down allowance (WDA). The WDA allows you to claim tax relief on all applicable company assets, and some parts of office fit out come into this category. There is no cap on the WDA, but the deduction is spread over a number of years, at the following annual rates:
- Main pool - 18% deduction
- Special rate - 6% deduction
- Buildings rate - 3% deduction
The main pool rate includes all plant and machinery. This is defined as items that you keep to use in your business, excluding leased items, entertainment items, land, structures, and buildings. The special rate pool applies to integral building features and insulation. The buildings rate pool covers the purchase, construction, or renovation of all buildings.
This is the last form of tax relief you should use, only when repairs and the AIA have been exhausted. It has a lot of restrictions on what is deductible, and is a lot less generous than the AIA. It’s also important to classify carefully within the WDA, and fix as much as you can into the main pool, rather than the special rate or buildings pool. This will help you reduce the cost of your fit out.
Reducing your Fit Out Tax
Every company and project is different, and there are many variables that affect what is best for you. Below, is a simplified cost summary of a fictional project, to show you how tax relief can reduce the cost of your fit out, and what the most tax-efficient way to designate expenditure is.
Description | Invoice Cost | Tax Rate | Tax Relief | Saving | After-Tax Cost |
Making Good & Repair Works | £20,000 | 25% | Expense (100%) | £5,000.00 | £15,000.00 |
Partitioning & Joinery | £50,000 | 25% | WDA (3%) | £375.00 | £49,625.00 |
Decoration | £3,000 | 25% | Expense (100%) | £750.00 | £2,250.00 |
Flooring | £30,000 | 25% | AIA (100%) | £7,500.00 | £22,500.00 |
Teapoints | £25,000 | 25% | AIA (100%) | £6,250.00 | £18,750.00 |
Washrooms | £7,000 | 25% | AIA (100%) | £1,750.00 | £5,250.00 |
Air Conditioning | £65,000 | 25% | AIA (100%) | £16,250.00 | £48,750.00 |
Power & Data | £40,000 | 25% | AIA (100%) | £10,000.00 | £30,000.00 |
Lighting | £20,000 | 25% | AIA (100%) | £5,000.00 | £15,000.00 |
Fire Safety | £15,000 | 25% | AIA (100%) | £3,750.00 | £11,250.00 |
CCTV | £5,000 | 25% | AIA (100%) | £1,250.00 | £3,750.00 |
Furniture | £135,000 | 25% | AIA (100%) | £33,750.00 | £101,250.00 |
Total | £415,000 | | | £91,625.00 | £323,375.00 |
It may not always be possible or practical to use multiple tax relief schemes within one project – certainly to the extent demonstrated above. You should consult a qualified tax expert before proceeding.
Minimising Your Office Fit Out Costs
By following the process we’ve gone through here, you’ll be able to make your office fit out as tax-efficient as possible. In doing so, you’ll be able to save up to 25% of your office fit out costs. This will free up budget to invest more in your office fit out, or use in other areas of your company.
It’s important to note that your project is unique, as is your company’s tax situation. This article contains general information, and may not be relvant or suitable for you. Always speak to your accountant and a qualified tax expert.
You’re now ready to go through the process yourself, to reduce the tax liability of your office fit out. If you’re still in the design phase, you’ll be able to adapt the scope to make the most effective use of tax regulations possible. Even if you’ve already completed your project, you can still use this process to assign expenditure in the most effective way possible.
For more help reducing the cost of your project, read 3 Ways To Reduce The Cost Of Your Office Refurbishment. Alongside tax relief, it explains other ways you can minimise your fit out costs. To learn more about office fit out costs, download your copy of the Office Fit Out Costs Guide. There, you’ll learn about office fit out cost ranges, what affect fit out costs, why some companies are more expensive than other, and how to define your fit out needs. Download your copy here.
