The rules surrounding your business paying for your garden office
Vantage Accounting
At Vantage Accounting, we offer fixed rate, all-inclusive accounting services for individuals and small businesses.
One of the benefits of running your own business is that you may be able to complete your work from any location you wish, which for many is to work from home. But if you don’t have the space to dedicate to your work and are considering a garden office, is your company able to pay for it?
In this blog we explore the world of garden offices, and what your company can pay for.
Paying for your garden office through your Limited Company
Whilst you can pay for your garden office through your Limited Company, it’s worth remembering that it won’t be classed as a tax-deductible expense, rather a capital expense. So, what’s the difference? A capital expense is a long-term investment made by your business, and therefore has a likeness to things with a lifespan of more than 12 months, such as property, furniture, etc.
Whilst some of the costs associated with the setup, installation and equipping of your garden office aren’t claimable against your profits, you may still be able to claim tax-relief using Capital Allowances. By purchasing assets for your Limited Company you’re able to reduce your overall tax bill. Claimable assets are defined by HMRC, and you must itemise your invoice accordingly to show those items that can be claimed. Such items include:
The cost of heating and lighting the office is also tax-deductible, as is the supply of water if metered separately to the main home. If you don’t have a separate metre, then a reasonable allocation can be made based on usage and floor area. If you are considering a caravan or other movable containers as your garden office, these will still qualify as plant and machinery, and therefore will qualify in their entirety for Capital Allowances.
Reclaiming VAT
If you’re company is VAT registered and not using the Flat Rate VAT Scheme, you’re able to reclaim VAT when building your garden office. It’s worth remembering though that if you use your garden office for dual purposes (such as a gym, personal hobby space, etc), it may be classed as a Benefit in Kind (BiK), and you’ll be required to complete a P11D and pay associated National Insurance, along with paying income tax personally. It’s always best to speak to your accountant and they can guide you through the rules.
Claiming VAT if you’re using the Flat Rate Scheme
If you spend over £2,000 in the same transaction, then you’re able to claim for capital expenditure for the goods.
What about planning permission?
Before spending any money it’s worth double checking with your local council, so that you don’t get stung after building your garden office. Rule of thumb is that unless you garden office is more than 2 metres from your property’s boundary, or exceeds 2.5 metres in height, then usually you do not need planning permission – but it’s worth double checking!
Business rates – do they apply?
It completely depends on your circumstances. If you were running your Limited Company from a room inside your home, you wouldn’t qualify for having to pay business rates. If you’ve actively changed your home to better suit your business’ specific needs (ie if you were a hairdresser or barber and adapted a room in your home to match a hair salon), then you may be subject to business rates.
Your garden office will depend on how big it is and your location, as all areas will have a different opinion when it comes to charging business rates.
Will you have to pay Capital Gains Tax (CGT)?
When you come to sell your property, you’ll be subject to CGT if your garden office was solely used for business purposes. If your garden office had dual purpose (ie you used it for an exercise space / break-out area / entertainment space / etc), you won’t be subject to CGT, but also won’t be eligible for VAT claims.
Anything else to consider?
We’d always advise talking to your Client Director here at Vantage to ensure you get it right first time, as the tax rules surrounding garden offices can get confusing, and it can be easy to get it wrong. The best solution to keep things simple is a moveable structure; owned by the business which could be moved if you were to change address. Your Vantage Client Director will be able to advise on your best option, and what you can expect to pay when it comes to having a garden office.