Can My Limited Company Pay for My Garden Office?

It might seem like an odd question to ask your accountant, but it’s becoming more and more common for contractors to enquire about the financial and tax consequences of building a home office in their garden.

Contractors who work from home often find it helpful to dedicate space to their work, as this can make it easier to avoid distractions, and to switch off and wind down once the working day is done. 

What we’re usually talking about is a temporary structure, like a prefab or a shed, that you can run your business from; freeing up the spare bedroom for your collection of Elvis memorabilia, or maybe even a bed.

Can my limited company claim tax relief for a garden office?

The building itself would be classed as capital expenditure, since it’s expected to last some years, and as a structure from which your business is run it doesn’t qualify for immediate tax relief and it isn’t allowable as an expense against your business profits. This includes design and planning as well as the actual construction and initial decoration. This doesn’t mean that your company can’t pay for your garden office, just that it won’t be a tax-deductible expense.

The good news is that fixtures and fittings, do qualify for tax relief through capital allowances, so you can claim for your furniture, curtains, shelves, etc. The cost of installing power, including electrical wiring, light fittings and heating also qualify. Thermal insulation qualifies too, despite being part of the initial construction.

Running costs, including heating, lighting, water if separately metered, and repairs are also claimable.

Can I reclaim VAT on the cost of a garden office?

If your company is VAT registered, and not using the Flat Rate VAT Scheme, you can claim back the VAT on the cost of building your garden office. The one complication arises if the office also has a personal use. For example, if the kids use it for TV and games at the weekend, all that peace and quiet may come at a cost.

If there is personal use as well as business use, you’ll need to work out the pro-rata personal and business usage. For example, if it’s used for business during the week and has a personal use at the weekend, you could claim back 5/7 of the VAT. Personal use may also create a benefit in kind (see below).

What if I’m using The Flat Rate VAT Scheme?

If you’re using the FLS, you can claim for capital expenditure on goods over £2000, and there’s no restrictions on personal use. However, you’re only allowed to claim for goods, not services, and that’s where it can get complicated.

If you buy a timber building, such as a large shed, to use as an office, it counts as goods and you can claim the VAT. However, if you pay someone to construct it and fit it out with utilities, that’s a service and cannot be claimed. If this applies to you, make sure all the supplier’s invoices are clearly itemised. You’ll probably find that companies supplying this kind of building will be used to, and prepared for, this kind of request.

Some other things to consider

Personal use may create a benefit in kind

If your company has paid for your garden office, and you also use it for personal use, this may constitute a taxable benefit in kind. In this circumstance you may need to complete a P11D, and pay income tax on the taxable benefit. Ask your accountant for specific advice.  

Planning permission

Running your contracting business from home is unlikely to cause you many planning issues, since your business activities won’t usually disturb your neighbours or change the character of your home. Likewise, your garden office building should not require planning permission as long as it’s less than 2.0M from the boundary of your property and has an overall height of no more than 2.5M from the existing ground level. However, if you’re unsure it’s worth checking with your local authority.

Business rates

According to HMRC’s guidance on business rates for working at home, you don’t usually have to pay business rates if you use a small part of your home for your business, for example if you use a bedroom as an office. However, it also states that you may need to pay business rates if you make changes to your home, for example converting a garage into a hairdresser’s. Depending on the scale and type of building, your garden office will fall somewhere between these two examples and there’s a chance that your Local Authority will charge business rates for running your business from it.

The decision is made on a case by case basis, and different authorities may have differing attitudes. If you’re not sure, we’d advise you to contact your local authority and explain what you’re planning, so you know what you’ll need to pay before you start.

Capital Gains Tax

Capital Gains Tax will only be an issue when you sell your home, so if you’re planning on staying put for the foreseeable future it may not feature highly in your decision.

Tax legislation exempts your principle residence from CGT, as long as there is no exclusive business use on any part of your property. If your garden office is only used for business, you may have to pay CGT on part of your gains when you sell your home. For example, if it makes up 5% of the total floor area, 5% of the gain might be subject to CGT. This is not the case if there is mixed use, so it might be worth letting the kids use it at the weekend after all, depending on your plans and how much you’ll lose in VAT and income tax.

If you have questions about this issue, or if Orange Genie can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com

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