Are Coworking Spaces Tax Deductible?

Coworking spaces are flexible, cost-efficient, and popular substitutes for traditional office spaces. Many businesses across the UK choose to use them as their team’s dedicated office space.

By switching to a coworking space, businesses and freelancers enjoy easy access to a wide variety of facilities and amenities that a coworking membership provides, from state-of-the-art meeting and conference rooms to IT infrastructure and administrative support.

With all of these advantages, it’s easy to see why the demand for coworking spaces is soaring. But one question quickly pops up for those considering the change: are coworking spaces tax deductible?      

Yes! But they come with conditions. Knowing these is essential when trying to ideate how to start a business in London or anywhere in the UK.

The HMRC (His Majesty's Revenue and Customs), the UK’s national taxing authority, has a framework for businesses and self-employed persons to claim coworking offices. It falls under the broader umbrella of “working from another location," which is permitted under the "wholly and exclusively" principle.

Find out how you and your business can receive tax deductions by using a coworking space.

Have you ever wondered 'Is a Coworking Space Worth it?" Find out today.

Who Can Claim Coworking Space Expenses as Tax Deductions?

A Limited Company

Limited companies can claim the costs of coworking spaces as a business expense. This reduces the company's taxable profit, lowering its corporation tax liability.

In consideration of the “wholly and exclusively” principle, coworking space expenses must be used primarily for business purposes. If you’re an employee of a business in a coworking space, then your company covers this expense, hence you can’t claim this as a tax benefit.

A Sole Trader

Sole traders can claim coworking space expenses directly on their Self Assessment tax return as a business expense. This reduces their taxable income, potentially lowering their income tax bill.

As a sole trader, there's no legal distinction between you and your business. This means there's generally more flexibility in claiming these coworking expenses, but also less protection against personal liability if things were to go wrong financially.

Conditions and Considerations for Claiming Coworking Space Expenses

In the UK, claiming coworking space expenses hinges on the crucial concept of "wholly and exclusively" for business purposes. This means the primary reason for using the space must be work-related, not personal activities.

Claiming expenses is usually acceptable when you regularly use the space for work activities, including business meetings, focused work sessions, or attending networking events held within the coworking space.

However, it becomes less straightforward when using a coworking office occasionally or solely for specific purposes like accessing fast internet or renting a dedicated room for a few hours. This was interpreted from case law and is usually defined as not spending the majority of your work hours at the coworking space. In such cases, it might be difficult to convince the tax authorities that the space fulfills the "wholly and exclusively" criteria.

Your business must maintain strong record-keeping and provide documentation proving your use of the space to ensure you can deduct expenses.

Related: Coworking Space Amenities: A Guide to Productivity and Comfort

What Coworking Space Expenses are Claimable?

According to UK legislation, there are specific expenses that businesses and individuals can claim during tax season. Regardless of the business structure, claiming coworking space expenses requires the space to be used primarily and demonstrably for work purposes. As previously discussed, your coworking office space must be used almost entirely for your business activities.

To claim a business expense, keeping detailed records like receipts, invoices, and usage logs is essential to prove the work-related nature of your coworking space expenses.

So, what coworking tax deductions can you and your business claim?

Membership and Desk Rental Fees

Whether you pay for day passes or a monthly or annual flat rate fee, you can claim expenses on your coworking memberships. 

These costs are usually claimable if you pay for a dedicated desk within the coworking space.

Utilities

When you pay for a coworking space membership, you’ll no longer have to pay the utility bills you otherwise would have if you rented a traditional office space. However, if your membership considers this as a separate expense, then this is deductible.   

Shared Facilities

Depending on the provider, you may be charged for other expenses, such as using an office, a conference room, and some office equipment. Additional costs can be deducted from the company’s overall business expenses.

You might be eligible for capital allowances if you purchase essential furniture or equipment specifically for use in the coworking space.

Capital allowances allow you to claim tax relief on the depreciation of an asset. This is a complex area, so it is recommended that you seek advice from an accountant.

Are Travel Costs Tax Deductible?

Generally speaking, travel costs, parking expenses, and mileage claims when commuting to and from your coworking office space are not tax deductible.

Conclusion

Your business can take advantage of many tax benefits when choosing a coworking membership over renting traditional office spaces.

Shared office spaces are beneficial because of this.

If you’re considering a coworking space for your business, then we recommend consulting a tax advisor or accountant to ensure you understand and comply with the latest tax regulations and claim deductions correctly according to your specific circumstances.

Looking to make the switch to coworking spaces? Why not try Servcorp’s prestigious coworking spaces that are situated across four prestigious locations in London. As the workspace solutions experts, our friendly team can answer any questions you have and find the right space for you. If you have more questions about coworking spaces, please refer to our ultimate coworking space FAQs for a detailed breakdown.