Contractors’ Questions: Can my limited company pay a work space fee?

Contractor’s Question: Local collaborative working spaces near me are not cheap. Most charge on a monthly basis for a set number of hours which you must use or lose per month.

How would I go about expensing the monthly fee via my PSC, or would it fail the ‘wholly, exclusively, necessarily’ test? Would an annual payment be more acceptable to HMRC?

Expert’s Answer: It is certainly possible to expense working spaces through your PSC, just make sure what you are paying is reasonable and justifiable for what you get in return. In other words, make sure you are paying the market rate for the space you get in return.

HMRC will have no issue with you renting office space for your business provided that space is relative to your requirements. It cannot be expected that everyone works from home. If your PSC meets this expense, it needs to ‘wholly and exclusively’ for the purpose of the business to avoid any tax implications of the company paying for a personal benefit.

You can make the payment either monthly or annually, whichever suits you best as HMRC will have no preference. The main thing to remember when setting this up is that it is best to get any contract or agreement in the name of your PSC and the payment should ideally go through the PSC’s bank account.

As an aside, and for reference purposes, HMRC now only refers to expenses as wholly and exclusively as per their definition, below:

“In S34 Income Tax (Trading and Other Income) Act 2005 for unincorporated companies and S54 Corporation Tax Act 2009 for companies, the statute says that expenditure cannot be deducted in computing trading profits unless it is incurred wholly and exclusively for the purposes of the trade, profession or vocation.”

The expert was Derek Kelly, chief executive of contractor accounting firm SJD Accountancy.

Tuesday 28th Nov 2017