2nd March 2023
This has to be one of the most frequently asked questions we have received in recent years and the short answer is yes, it can. However, it’s highly unlikely that you will be able to claim tax relief on the office itself as it would be classed as capital expenditure. Any structures (even if they are a mobile one), do not count as an allowable expense against your business profits.
So if you are considering building a garden office, be prepared that any costs relating to design, planning, building and installation will need to be paid for in full. This doesn’t mean that your limited company can’t pay for it, just that any of the costs listed above will not be tax-deductible.
The good news is that you can claim tax relief through capital allowances on insulation, electrical wiring, and plumbing. Fixtures and fittings also qualify for tax relief so you can claim for any costs for fitting it out as well, such as shelving and furniture.
If you intend to use your garden office for work and personal uses, such as a gym or play area for your children, this may constitute a taxable benefit in kind. In this instance its best to discuss it with your accountant as it may need to be declared on your personal tax return.
It is possible to claim for the additional costs of heating and lighting your new workspace, as well as for a dedicated business broadband service and the supply of water. If your garden has a separate meter, you can deduct the utilities’ cost in full. However, if this is not the case, you’ll need to establish the proportion of the household costs used for business purposes. Most households find it simpler to either claim a “use of home” allowance or work out the allowable share of their bills using an HMRC approved calculation.
This is where it gets a bit more complicated as VAT works differently to your accounts and allowable expenditure, so if your business is VAT registered, you can claim back the VAT on the cost of the building’s contents and the building itself. You can also claim back the VAT on charges for heating, plumbing and electrical wiring as well as fixtures and fittings.
If you are using the Flat Rate VAT Scheme, you can only claim back the VAT if you have spent over £2,000 or more on a single capital expenditure purchase. However, you cannot claim back the VAT on any services used to construct the office, for example, if you employed someone to build the office and install the fittings.
If you have some personal use of the space though be aware that for VAT, you will need to work out the business and personal usage percentage and only claim back the VAT for the business element.
If you plan on selling your home, you should consider this as you may need to pay Capital Gains Tax (CGT) on your garden office. The amount due would depend on the building’s size and the percentage of the plot of land it takes up.
Legislation currently exempts your principal residence from having to pay any CGT, as long as there is no exclusive business use in your property (including sheds and outbuildings). As your garden office is being used for business purposes, you may need to pay CGT when you come to sell your house. The annual allowances for CGT are being reduced so watch out for this and check at the time of sale.
What about when I close my limited company?
If you decide to close your limited company in the future, you will need to consider the cost of buying back the garden office. The office is technically owned by your company, so you would need to buy it back personally at a commercial value at that time. Please be aware that if your company is VAT registered, this will also need to be accounted for in the sale.
As you can see it’s not a straightforward as you may think so please do have a chat with us if this is something you are looking to do and we will talk you thought the best options for you and your business.
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