Is Your Garage Tax Deductible?
Dunfermline Accountants, OnTax, noticed a client charging their own Ltd company for the use of their garage and we realised some clients may not be taking full advantage of this taxable deduction. OnTax Dunfermline Accountants checked with the taxman at HMRC to find out the low down on exactly what is deductible and what is not.
Our friendly tax inspector, Bob, told OnTax Dunfermline Accountants that any allowance that is paid to employees for the securing of company assets, i.e the company car, in the employees own garage is taxable. This would mean that PAYE would have to be calculated and this in turn means that the amount that was paid to the employee is treated as the net amount so would require "grossing up".
Phew! For those that are still with us we salute your understanding of the UK tax system! This concept of "grossing up" would happen regardless of whether the garage was physically attached to your house or not. However, there are some loopholes that can be exploited that we have discovered.
When A Garage Is Tax Deductible
Bob, our friendly tax inspector, told us that he accepts that company cars may need garaged in order to protect them and he pointed us to the taxmans manuals that indicate if an employee has to garage a company car and the employee has no garage of their own available, then the employee can rent a nearby garage and charge the full cost to their own Ltd Co.
What the taxman is saying in effect is that you don't need to own the garage yourself necessarily. As it is being uysed soley for the purpose of protecting a business asset (the car) it clearly has no personal use and being 100% business use is therefore tax deductible.
What If The Garage Is A Storeroom?
What though if you store work samples or tools in your garage? We would urge you to have a "home-working agreement" in place with your Ltd Co thereby allowing it to pay you £3 a week tax free. However there is a sting! If this is paid as an "allowance" it is subject to PAYE whether or not the garage is part of your home. But, if the employer were to claim that this is "rent" it becomes a tax deduction for the company and not taxable via PAYE for the employee. Therefore, the employee would simply charge "rent" to the company.
Disclaimer: The advice contained herein from us is subject to the tax rates and law applicable in the UK at the time of writing. No reliance should be placed on this article, which has been written from an anecdotal perspective. Always obtain written advice for your specific situation from a properly qualified professional.
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