mandelbrot
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There's still one
There are 2 distinct and separate issues: VAT deductibility and loss of PPR relief from CGT.
A deduction can be claimed for VAT charged in respect of goods/services supplied in so far as they are used for the purposes of making taxable supplies. There's no provision of which I am aware which restricts goods/serivces to be used in or on property owned by the taxable person.
So in theory a deduction could be claimed in the circumstances set out by OP.
PPR relief may be lost if the part of the premises is used exclusively for business purposes. This means that if it is used part business/part personal then there shouldn't be any loss of PPR relief on disposal.
Where the VAT deductibility and PPR relief could interact is if full deduction for VAT incurred on improvements to the premises was claimed, it would be one indication that that part of the premises was used exclusively for business. As the expenditure was incurred by the company it couldn't then be claimed as enhancement expenditure when calculating CGT.
The alternative would be to claim VAT incurred in proportion to business use, which would help demonstrate that there is a non-business element to the use of the premises. Of course, all facts would need to be considered to conclude one way or the other.
In my opinion, it's just not worth it.
After thinking about it today I had actually intended to come back and alter my position to reflect that it's not as black and white as I was previously suggesting, but you've beaten me to the punch!
The only issue I'm still struggling with is that of the capital goods scheme. If the expenditure creates a capital good, but the taxable person spending the money doesn't have an interest in the capital good, and since the owner of the good is not a taxable person, then how can any input deduction be claimed?
Lets say the OP's hubby gets a lucrative contract and needs a bigger office, so the company vacates the office space next month, how do you calculate the self-supply? Ditto if it's next year, or further down the line? The CGS refers to the "owner" of the capital good, but to me ownership presupposes rights to dispose of the capital good, which the company doesn't have...
I think the bottom line for any lay person reading this thread, is the pretty much unanimous advice is that it's unlikely to be worth making a VAT claim in this type of situation.