I want to refurbish my offices completely.I assume the fact that my pension scheme owns the building does not cause any problem?
The fact that your pension scheme owns the building does not cause a problem. What will, however, are the terms of your lease.
As your business is a connected party to your pension scheme, you will have in place a formal lease which will govern the terms and conditions relating to any work undertaken at the property.
I need to know whether you intend for your business or your pension scheme to pay for the refurbishment. I am afraid there is another problem relating to VAT. So perhaps the correct answer to your question is that you should not be asking me the question but your solicitor and accountant.
Your lease will clearly identify who is responsible for what work at the property. The normal situation will be that repair and maintenance will be the responsibility of the tenant while structural work will be the responsibility either of the tenant or landlord. In any event, it is the lease that will determine who is responsible for the payment.
Another important point to identify and clarify with your solicitor is what will happen when the lease expires with regards to any work your business may undertake at the property.
An alternative to having this discussion might be to wait until your lease expires and then determine the terms to move forward. Essentially, you should not be looking for your pension fund as landlord to pay for non-permanent work – certainly not such items as office furniture and decorations.
Alternatively, if your lease has expired and you have handed over the property in accordance with the lease, there is nothing wrong with you as the prospective new tenant saying you will only take on a new lease if certain work is undertaken at the property. Again, you need to be cautious. If the pension scheme undertakes the work and completely refurbishes the property, it will quite rightly need to obtain new rental valuations and your company as new tenant will end up paying more rent.
All work undertaken, regardless of who pays the bill, will be subject to VAT. Properties owned by pension schemes enjoy a particular privilege relating to VAT. The pension scheme is able to class individual properties as being chargeable to VAT if they are not already. In this situation, the pension scheme would be able to recover all the VAT paid on the work undertaken. Unfortunately, however, once such an election is made, it remains in place and VAT will then be permanently chargeable on the rent. If your business is registered for VAT, then the VAT on the rent would be reclaimable. If it is not, then this again would be an extra non-recoverable cost.
As your business is connected to the pension scheme, it is vital that the transaction is seen to be undertaken properly at arm's length. Formal quotations – ideally several – should be obtained along with appropriate capital and rental valuations.
Do not expect the pension scheme to reimburse costs that have not been properly invoiced to the pension scheme. If you pay someone to undertake casual work, you cannot seek reimbursement from the pension scheme.
To answer your original question then, there are many problems, many of which fall into legal or accounting spheres. Look to your lease in the first instance to see exactly who is responsible for what before making any decisions.
If your lease is reaching a break point, you might wish to delay dealing with matters until that stage, again depending on whether it is your company or your pension scheme that is going to pay for the majority of the work.