Are costs deductible if you have a home office?
It seems attractive: living and working in one building. But a home office is by no means always fiscally attractive. The fiscal rules around a home office are complex. When is your workplace also a workspace for the tax authorities? Are costs deductible? What do you, your company and your workspace have to comply with then?
Among other things, there is a difference in the treatment of a qualifying and a non-qualifying workspace. In addition, different rules apply to an entrepreneur with a sole proprietorship, vof or partnership than to an entrepreneur with a BV. And what about VAT?
First of all, it is important to determine whether there is a qualifying workspace. For this purpose, your workspace must meet the independence and income criteria.
Your workspace meets the independence criterion if it has such independence that it is clearly recognisable. The workspace must in any case have its own entrance and sanitary facilities. This means that the workspace could also be rented to a third party.
A workspace in a living room, bedroom or attic is in any case not considered as qualifying workspace. A garage converted into an office with its own entrance and sanitary facilities may be.
Your workspace meets the income criterion if you earn a large part of your income in or from this space. If this is your only workspace, you must earn at least 30% of your income in the room and at least 70% in or from the room. If you have another workspace outside your home, you must earn at least 70% of your income in the workspace.
Entrepreneurs with a sole proprietorship, vof or partnership
Because the workspace is owned by the owner (natural person) and not by the sole proprietorship, vof or partnership, it is necessary for the determination of the fiscal profit to make a distinction between items that are used for the business and items that are not used for the business. We call this asset labelling.
The workspace can be regarded as business assets if it is legally or structurally separable from the dwelling. If this is not the case, you can choose to mark the entire home (including the workspace) as business assets, if at the time of acquisition of the home at least 10% of the home was intended to be used for the benefit of the company. In other cases, the workspace constitutes private assets. The tax treatment of your workspace depends on the way it is labelled: as private assets or as company assets.
Even if less than 10% of the home is used for the benefit of the company, you can also mark the home as company assets if you can demonstrate that the home is also subservient to the company. For example, because at the time of the purchase there was a joint purchase of the company and the home, supervision of the company is possible from the home, there is a common access road and suchlike.
Dwelling is private property
You cannot deduct the cost of a non-qualifying workspace from your profit. This workspace is simply subject to the owner-occupied home scheme.
The owner-occupied home scheme does not apply to a qualifying workspace. This means that the workspace does not count towards the owner-occupied home formula: the value of the workspace and the part of the (mortgage) money loan that goes with it must be declared as property and debt in box 3. You may deduct the cost of the workspace from your profit. However, this deduction is capped at the benefit you must declare in box 3 in respect of the workspace.
In addition, you may also deduct the costs that would normally be borne by a tenant (the tenant’s expenses). These include, for example, energy costs, costs of household contents insurance and costs of minor maintenance.
Dwelling is business capital
If the workspace is labelled as business assets, you can deduct the costs from your profit. In that case, the workspace does not fall under the owner-occupied home scheme, but is taxed as part of your company profits. This means that you do not include the workspace in the determination of the owner-occupied home formula and that, for example, a possible book profit on a sale is taxed.
If you have labelled the entire house (including the workspace) as business assets, you can deduct all costs (with the exception of tenant costs relating to the part of the house) from your profit. However, for the private use of your dwelling you must take into account an addition amounting to a certain percentage of the WOZ value. For most dwellings this will be 1.55% in 2020. In the case of a non-qualifying work space, you must take the WOZ value of the entire dwelling as a starting point; in the case of a qualifying work space, you must take the WOZ value of the dwelling excluding the work space as a starting point. In the case of split asset labelling (residential part of the private assets/corporate part of the business assets), this addition is omitted in the case of a qualifying workspace.
Workspace in rented accommodation
You can deduct a proportional part of the rent and the tenant charges in the case of a qualifying workspace in a rented accommodation.
Non-qualifying work space
If at least 10% of the dwelling is intended to be used for the benefit of the company, you could also choose to label the tenancy law of the entire dwelling as company assets until 2016. In that case you could deduct the rent, even in the case of non-qualifying work accommodation, but a certain percentage of the WOZ value of the entire dwelling did apply. In the case of a non-qualifying work space, you had to take the WOZ value of the entire residence as a starting point, and in the case of a qualifying work space, you had to take the WOZ value of the residence excluding the work space as a starting point. If you received a rent allowance, the deduction will be reduced by this allowance.
The designation of the tenancy law as business assets is done in the first tax return where this plays a role. This means that you do this in the year in which the rent commences or in the year in which your business starts. If the income tax return for that year has not yet been finalised, you can still make use of this deduction item, also with retroactive effect. State Secretary of Finance Wiebes has already indicated that in cases where the income tax return has already been definitively determined, it is no longer possible to label it as business assets. You will then no longer be able to make use of the deduction in 2016 and previous years.
As a result of a change in the law, since 1 January 2017 it is no longer be possible to obtain a deduction for non-qualifying work space if you label the rental law as business assets.
This also applies to existing cases that have already labelled tenancy law as business assets before 1 January 2017. In the case of a qualifying workspace, the deduction also remains possible since 2017.
Entrepreneurs with a bv
If you operate from a private company, the distinction between a qualifying and a non-qualifying workspace also applies.
The workspace falls for you, as a director-shareholder (DGA), in box I (the TBS regulation). This means that the compensation must be determined on commercial grounds. The allowance is deductible from the profit of the BV and constitutes income in box 1 for the DGA, after deduction of all costs attributable to the workspace, such as heating and lighting. This also applies to insurances, maintenance, furnishing and business expenses.On this taxed income, you may still deduct the TBS exemption of 12%.
The owner-occupied home scheme does not apply to a qualifying workspace. This means that you do not count the workspace for the determination of the owner-occupied home formula: the value of the workspace and the part of the (mortgage) money loan that goes with it must be indicated on the balance sheet of your employment in box 1. You are also not affected by mortgage interest deduction restrictions, such as the maximum deduction up to a rate of 46% (2020).
A disadvantage is that if the house is sold, the selling profit realised on the workspace/office is subject to income tax. In case of a possible loss, this is of course also deductible.
A non-qualifying workspace falls under the owner-occupied home scheme: the owner-occupied home formula is calculated over the dwelling including the workspace. Any compensation for the workspace will be treated as wages for the DGA. However, it is possible to designate the allowance as a final tax component in the free space of the work cost scheme. In that case, your BV does not pay any tax, as long as the total of all reimbursements and benefits in kind designated in the free space does not exceed 1.7% of the total fiscal wage in your BV (1.2% for the wage above € 400,000). If this free allowance is exceeded, your BV pays 80% final tax on the excess. The wage costs are deductible from the profit.
In the case of non-qualifying workspace, there is a limited right to deduct costs. Costs of the workspace, including the furnishing costs, may not be deducted. These costs include:
- Energy costs
- Wallpaper and paintwork
- Costs for inventory (desk, cupboard, lamp, airco)
Costs of inventory specifically related to the profession (professional expenses) are not included in the concept of installation costs of the workspace and are deductible. These include computers, a drawing board, file cabinets, display cases, telephone equipment, etc.
VAT and entrepreneurs with a sole proprietorship, vof or partnership
The distinction between qualifying and non-qualifying workspace is not important for VAT.
For VAT purposes, it is important whether the items, such as a workspace, have been used for the benefit of your company and whether you generate VAT-taxed turnover with them. If that is the case, you can label these items for VAT business use and deduct the input tax relating to the business use. You can think of VAT on energy, maintenance and equipment.
VAT and entrepreneurs with a BV
If you, as a DGA, rent the workspace to your BV, you cannot deduct the VAT relating to this workspace. Renting out your workspace to your private limited company does not lead to entrepreneurship for VAT purposes.