A Family Sports Complex or Business Use? HMRC Wins £300k Case
The pandemic led to a significant rise in the number of garden offices throughout the country as workers were forced to work from home.
It is generally known that there are many, and sometimes complex tax implications of using garden offices that businesses and individuals need to be aware of. However, a successful chartered accountant of many years’ experience tried – and has ultimately failed to get around the tax rules.
Following an unsuccessful appeal against HMRC, Graham Wildin has now been ordered to pay a tax bill totalling £297,630.65 which includes income tax, VAT, tax penalties and surcharges.
Separately, he has been ordered to demolish the structures involved.
What are the rules?
The application of the rules to garden structures used as offices is largely fact-specific. The general rules are that you can claim tax relief through capital allowances on, for example, wiring, plumbing and insulation; relief on costs such as office furniture and equipment; and on services such as internet and water (sometimes, only a proportion) and repair costs.
Where the office has a dual purpose – for instance, as a gym or entertainment room, it may be classed as a ‘benefit in kind’, in which case it would need to be declared on your income tax return.
What’s the background to this case?
In this case, the taxpayer – Wildin – had purchased properties that backed onto his main home. In 2013, he began to build a sports and leisure complex, cinema and casino. In the same year, he also registered for VAT and incorporated two companies for furnished holiday letting.
Wildin submitted VAT claims on input tax arising from the construction costs; and further tax reliefs including a large claim of capital allowance in his income tax self-assessment returns. He argued that the building costs were tax deductible as the building was to form part of a luxury holiday let business.
However, the tribunal found that at the time Wildin incurred the expenditure in constructing and fitting out the sports complex, his purpose was to enhance the facilities attached to his main home for the private enjoyment of his immediate family.
Importantly, the required ‘purpose’ test is subjective and referable to the individual’s personal attributes and circumstances. It was a matter of fact that the money he spent on construction and fitting out during the relevant periods was “unsupportable; the putative trade simply did not exist”.
The evidence was clear: Wildin had even given media interviews making it plain the development was for his family. Furthermore, there was no evidence of any business or trade being carried on.
He had not helped his own case because of various and “significant inconsistences” over the same factual matrix in his testimony given in two separate hearings. The tribunal chair concluded he was not a credible or reliable witness.
What does this mean?
Anyone building or renovating structures on a family property who wants to apply tax reliefs on the basis that they are being used for business activities must take specialist advice from independent and experienced tax specialists before seeking to circumvent the tax rules.
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