Contractors’ Questions: Is a co-working fee an allowable expense for my limited company?

Contractor’s Question: I have enlisted Google Web Search, but so far in vain, to find an answer to my nagging query: is the subscription fee/monthly membership cost of a co-working hub something my limited company can put on expenses, or pay outright?

Or is the £150 fee a cost my client should help foot, given that they want me to work from home – not from their premises with its staff? I find there are too many distractions at home.

Plus, I’ve got an infinitely better chance of hitting the client’s demanding deadlines if I work from a co-working hub where I’m more productive (based on a trial day I did). I also have two other prospective clients and it would be best to execute their potential workloads and meet with them at the hub, as it has Wi-Fi and meeting rooms. Surely HMRC does not really expect me to bring these potential clients to attend my tiny home-based office?

Expert’s Answer: It would be remiss of me to not say that you should never go to Google for advice on accounts or tax affairs. You should engage the services of a professional who can draw on their knowledge and experience to advise you. Going it alone and asking Google to help can cause you to make mistakes that could cost you dearly. You could make decisions that are not tax-efficient, or worse still end up with HMRC charging penalties and interest for errors made.

There are two elements to my answer to your question, although both elements are parts of the whole. Is the cost a genuine business expense and is there any personal benefit derived?

In assessing whether the cost is a genuine business expense, you should always think about whether that cost has been incurred in the interest of providing your business service/product. This should be considered before incurring any cost and claiming it as having an effect on business profit for corporation tax purposes. The one HMRC sentence that you need to remember is that any cost should have been incurred “wholly, necessarily and exclusively” for the purpose of your trade.

In determining whether a cost has been incurred “wholly and exclusively” for the purpose of trade, we are really asking whether there was any personal benefit arising as a result of the cost being incurred. Where there is a personal element to a transaction, then either the cost claimed should be restricted so that only the element that relates to business use is claimed or (if the entire cost is claimed), then a taxable Benefit in Kind is declared for the individual who benefitted from personal use of any services or goods.

If there is no personal use, then the cost can be said to have been incurred “wholly and exclusively” in the purpose of trade and that element of the distinction is satisfied.

Next, we need to think about whether the costs incurred were necessary for the business to provide its service or products. In your scenario, the cost being considered is office rental costs and there are valid operational reasons why these should be incurred. You won’t be the first small business to incur such costs and certainly won’t be the last! 

You’ve mentioned that having access to the co-working space allows you to focus on output (without the distractions of your home) which enables you to hit deadlines. There are also other benefits for your business such as access to meeting rooms and the ability for you to create a more professional image.

As to your other question, the method of payment makes no difference to the accounting treatment of the cost and so you should either pay for this yourself and reclaim the cost from your company or have the company pay directly, whichever is your preference.

This would really be a cost incurred by your business in providing its services and as such is a valid business cost. Whether you negotiate with your client for them to cover the cost of this by way of a recharge is between you and them. But if you’re contracting and having to pay for premises, it could form part of an argument to protect an outside IR35 status.

The expert was Patrick Gribben, head of client services at contractor accountancy firm Intouch Accounting Limited.

Monday 2nd Dec 2019