If you’re a contractor or small business owner working from home all or some of the time, you’ve probably looked for ways to maximise your business expenses.

One area that often sparks debate is home renovations: can you, or should you, put those costs through your business? On the surface, it might seem like a clever way to reduce your tax bill, but there are crucial legal and financial factors considerations to weigh up.

What home renovations can you claim tax relief on?

If you’re a small business owner or contractor working from home, you can claim tax relief on some home renovations. While personal home improvements are not usually tax-deductible, certain renovations may qualify if they are directly related to your business.

1. Repairs and maintenance

General repairs that keep your home office or business space in working order are often claimable as a business expense. This could be fixing a leaky roof, repairing flooring, or repainting your office. These are considered maintenance costs rather than capital improvements.

2. Creating or upgrading a home office

If you renovate a dedicated workspace, some costs may be tax-deductible. The expense must be solely for business use to qualify. They could include converting a spare room into a home office or upgrading an existing office with built-in storage or soundproofing,

3. Energy efficiency upgrades

Installing energy-efficient features like better insulation, double glazing, or solar panels may qualify for tax relief, particularly if they benefit your home office. Some government schemes also offer incentives for these types of improvements.

4. Accessibility modifications

If you need to make changes to accommodate a disability – such as installing ramps or widening doorways – these costs may be eligible for tax relief, especially if they are necessary for you to carry out your business activities.

What doesn’t qualify?

Home renovations that enhance your property for personal use generally don’t qualify for tax relief. Things like a new kitchen, bathroom remodel, or an extension that isn’t exclusively for business wouldn’t cut it with HMRC. However, if part of the renovation benefits your business, a portion of the cost may be deductible.

Before claiming, it’s always best to seek professional advice to ensure your renovation expenses align with HMRC’s guidelines and don’t lead to unexpected tax liabilities.

The pros: When it makes business sense

Legitimate business use

If part of your home is genuinely used for business purposes (such as a home office, studio, or workspace) certain renovation costs could be tax-deductible. Upgrades like soundproofing, better lighting, or additional storage can be viewed as business investments.

Capital allowances

You might be able to claim capital allowances for assets used in your business, including office furniture, IT equipment, or even specific upgrades like electrical rewiring for your workspace.

Enhanced productivity

Workspaces that are well kept and designed can boost efficiency and create a more professional environment for meetings, video calls, or client interactions. This could justify some renovation expenses as necessary business investments.

Potential VAT reclaim

If you’re VAT registered, you may be able to reclaim VAT on certain business-related renovation costs. However, strict rules apply, and you must prove the expenses are directly related to business use.

The cons: When it’s a risky move

HMRC scrutiny

HMRC takes a firm stance on personal expenses being claimed as business costs. They closely monitor personal expenses claimed as business costs. If they suspect you’re overstating a ‘business expense,’ you could face a tax investigation, fines, and the need to repay any tax relief claimed.

Capital Gains Tax (CGT) implications

Claiming part of your home as a business asset can affect your Capital Gains Tax (CGT) liability when selling your home. Normally, your main residence is exempt from CGT, but using part of it for business could reduce that exemption.

Dual-use challenges

If a renovation benefits both business and personal use (like upgrading broadband or refurbishing a shared space) only the proportion used for business is deductible. Getting this calculation wrong could lead to tax complications.

Restrictions on expense claims

While minor business-related refurbishments may be allowable, structural changes or major home improvements (like a new kitchen or an extension) are unlikely to qualify as business expenses.

Finding the right balance

So, should you put home renovations through your business? The answer depends on whether the renovations are genuinely for business use, properly documented, and compliant with tax laws. If the primary benefit is personal, the risks likely outweigh the rewards.

Before making any decisions, consult with an accountant who understands the complexities of business tax laws. Accountancy firms like ours help contractors and small business owners make their way through these issues, ensuring compliance while maximising tax allowances.