Tax and Office Refurbishment
Tax and Office Refurbishment
Are you looking for ways to minimise the cost of your upcoming office refurbishment? If so, one of your key questions is likely to be “Is my office refurbishment tax deductible?”. The answer is almost certainly yes. There is some form of tax relief available for almost every office refurbishment.
With the UK corporation tax currently at 25%, maximising the available forms of tax deduction could save you up to 25% of your office refurbishment costs. However, because the various schemes are not well understood, many companies don’t claim all the tax reliefs to which they are entitled.
As a design and build company, we speak to companies every week about planning their office refurbishments. One topic that they often don’t consider soon enough is tax relief. Making your office refurbishment as tax-efficient as possible starts with the design. It then requires careful planning and good communication with your finance team to ensure you maximise the tax relief available to you.
Before we start, you should know that this article is specific to taxes and legislation in the UK, correct at the time of writing. Tax law varies from country to country and regularly changes. You should always consult with a qualified tax accounting expert before proceeding.
In this article, we’ll explain why repairs are automatically deductible. We’ll then go through the most important capital allowance schemes for your office refurbishment. We’ll also explain how you can apply these to your project. By the end, you’ll have a good understanding of how to carry out your office refurbishment in the most tax-efficient way. You’ll be able to work with your project designer and tax accountant to do so.
To learn more about preparing for your office refurbishment, download your copy of How To Plan an Office Refurbishment. It’s a 7-step guide to help you plan your office refurbishment. This will take you from defining your brief right through to signing the contract. Download your copy here.
Are Office Refurbishments Tax Deductible?
There are various different methods and schemes available, so maximising your total tax deduction requires careful planning. Here, we’ll go through the most important ways to get tax relief, and how you can apply them to your project.
Repairs
The first thing to establish is whether to classify the works as repair or improvement. This matters because all repair work can be classed as a revenue expense. This means they are 100% tax deductible - creating effective savings of 25%. 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.
Capital Allowances
The improvements in your office fit out will not cannot be classed as an expense, and are not allowable expenses. However, there are several capital allowance schemes allowing taxpayers to get tax relief on capital expenditure. They do this by allowing it to be deducted from their annual taxable income. You can claim capital allowances when you buy assets that you use in your business such as vehicles, machinery, and IT hardware. You can also claim on items called fixtures, fittings, and integral features. This includes air conditioning, CCTV systems, and fitted kitchens.
Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) is a form of tax relief designated for the purchase of business equipment. Eligible purchases qualify for a 100% tax deduction – creating effective savings of 25%. The AIA has a cap of £1,000,000 annually. How much you save depends on how much you are already investing in eligible assets and the amount of tax you are currently paying.
Most assets purchased for business purposes can be claimed as qualifying expenses for AIA. The categories most relevant for office refurbishment 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.
Writing Down Allowance (WDA)
If your office refurbishment is more than £1,000,000, or you have already used your AIA for other investments, you can make use of the writing-down allowance. The WDA lets you deduct a percentage of the value of certain items from your profits each year. This is grouped into 3 sections:
- 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.
Under the WDA, furniture would qualify for the main pool, HVAC works would qualify for the special rate pool, and solid partitions would be covered by the buildings rate pool. As this tax relief is a lot more restrictive and not as generous as the AIA, it should only be used where the AIA does not apply.
How To Maximise Tax Relief on Your Office Refurbishment
Many office refurbishments will involve both repair and improvement. In order to maximise the tax benefits, you will want to class all repairs as an expense, as this has no threshold. You should then allocate all other qualifying costs under the AIA. If you have already exceeded your AIA, you can use your WDA. This has no cap, but the deduction percentages are much smaller
Below is a simplified cost summary for a fictional project. This is to demonstrate how tax savings can reduce the costs of your office refurbishment. It works on the 25%% corporation tax rate that came into effect on the 1st April 2023.
Description | Invoice Cost | Tax Rate | Tax Relief | Saving | After-Tax Cost |
Repair Works | £20,000 | 25% | Expense (100%) | £5,000 | £15,000 |
Partitioning & Joinery | £50,000 | 25% | WDA (3%)* | £375 | £49,625 |
Decoration | £3,000 | 25% | Expense (100%) | £750 | £2,250 |
Flooring | £30,000 | 25% | AIA (100%) | £7,500 | £22,500 |
Teapoints | £25,000 | 25% | AIA (100%) | £6,250 | £18,750 |
Washrooms | £7,000 | 25% | AIA (100%) | £1,750 | £5,250 |
Air Conditioning | £65,000 | 25% | AIA (100%) | £16,250 | £48,750 |
Power & Data | £40,000 | 25% | AIA (100%) | £10,000 | £30,000 |
Lighting | £20,000 | 25% | AIA (100%) | £5,000 | £15,000 |
Fire Safety | £15,000 | 25% | AIA (100%) | £3,750 | £11,250 |
CCTV | £5,000 | 25% | AIA (100%) | £1,250 | £3,750 |
Furniture | £135,000 | 25% | AIA (100%) | £33,750 | £101,250 |
Total | £415,000 | | | £91,625 | £323,375 |
*This amount can be deducted from your tax liability annually. As the other schemes are 100% deductions, they only apply to the first year.
This is only a high-level guide, based on the current tax reliefs available. A lot also depends on investments you are making in other areas of your business, such as factory machinery, as this will use up your AIA allowance.
It may not always be possible or practical to use different tax allowance schemes for the same project. You will need to work with your office design & build company to create an appropriate design and scope of work. You should always consult a qualified tax expert before proceeding.
Planning Your Office Refurbishment
Making sure your office refurbishment is as tax-efficient as possible is crucial to a successful project. It can save you up to 25% of your project costs – funds that can be used to increase the quality of your office, or reinvested into other areas of the business. Because of this, it’s a very tax-efficient way to re-invest operating profits from your business operations.
You now know about the most important ways of saving tax on your office refurbishment. You're now ready to work with your design & build company and your tax accountant to create an office fit out plan that maximises tax relief. This will create significant savings for your project.
To learn more about preparing for your office refurbishment, download your copy of How To Plan an Office Refurbishment. It’s a 7-step guide to help you plan your office refurbishment. This will take you from defining your brief right through to signing the contract. Download your copy here.
To learn more about the best ways to pay for your office refurbishment, read The 4 Best Ways to Finance Your Office Fit Out. We’ll explain each of the top 4 office refurbishment financing options in turn, and then help you make the right decision for your company.
