Tuesday, 1 October 2013

Hefty bills could hit hard

Company bosses who personally own their commercial premises could be landed with a hefty income tax bill if improvements are made, a leading legal expert claims.

“Owning your company’s trading premises can be tax efficient, but there are also drawbacks too,” said Stuart Haynes, from the commercial team at Martin-Kaye Solicitors in Telford and Wolverhampton.

“When you gain a financial advantage from the arrangement, even if this is the side-effect of a genuine business transaction, you will be hit with a tax bill under the ‘benefits in kind’ rules. This can happen in particular if you allow your company to use your property rent-free, and it spends money improving it.”

With a growing number of companies working from home-based premises, Stuart said this was becoming an increasingly important issue to consider.

He said: “There are solutions. For example, if you intend to create a home workspace by perhaps converting a loft into an office, you could grant your company a lease over this, so that it can pay for the work.

“You won’t then be taxed on this benefit in kind immediately – only when the lease expires. Bear in mind, though, that this only works with a lease. A rental agreement will not do.

“And drafting a lease agreement is a job for a lawyer, so make sure you get expert advice.”