Specific issues: domestic accommodation
Any VAT paid on goods or services must be incurred for a business purpose to be treated as input tax. As a general principle it is a personal, rather than business, responsibility to provide domestic accommodation. So in most cases the VAT incurred on domestic accommodation is not input tax.
The fact that a business is operated from the home of someone who is registered for VAT does not prevent VAT that is genuinely incurred for a business purpose from being deducted as input tax. The main difficulties are likely to be in working out whether the expenditure was actually incurred for a business rather than personal purpose. See VIT10200. In the case of mixed use you will have to work out what proportion relates to business use. See VIT25000.
A sole proprietor or partner might carry on a business from home and use a particular room or area specifically for business, for example an office or workshop. VAT incurred on costs which can be identified specifically to that area can be treated wholly as input tax. This would apply mainly to fixtures and fittings and decorating costs. VAT cannot be claimed on any items used purely for domestic purposes such as a bedroom suite.
In instances where expenditure relates to both domestic and business use of the property the private use must be taxed. You should follow the guidance at VIT25000. Here are some examples of expenditure where there is likely to be mixed business and private use:
- fuel and power;
- general maintenance of the property;
- security systems.
Remember that a supply of fuel and power is a supply of goods.