Many people are working from home, either fully remote, or a hybrid of office and home working. So we’re asked a lot whether your business can pay for the garden office.
We’re also asked about converting your garage into a home office, so check out our blog on garage conversions here.
You’ve found a beautiful design for a garden office, you have the room to put it in your garden. It’s going to allow you to work efficiently and effectively from home, so why shouldn’t the business pay for it?
There are a few aspects to think about, so let’s go through them:
1. Is it wholly, necessarily and exclusively for the business?
If it’s not 100% used for the business, it’s possible that you can’t claim for all of it, or if you do, you’re then looking at reporting the private use of it on a P11D, as a benefit in kind.
Now the tax office are really pernickety about this, we’ve checked. Even if you keep your lawnmower in your garden office, or garden furniture, this counts as personal use.
So you may want to personally invest in a small garden shed to store garden tools and equipment.
2. What costs can you claim against the business?
Even though everything you’re spending on your garden office feels like it’s for the business, different rules apply depending on the nature of the spend:
Structural costs:
- This would include the cost of the initial structure for the office, whether it’s a glorified shed, shipping container, bespoke design, or you build it yourself.
- These structural costs will not reduce your taxable profits, so won’t reduce your tax.
- The only time structural costs reduce your tax, is when you come to sell the asset. In this case we deduct the cost of the structural work from the sales proceeds.
- See below for guidance on capital gains tax.
Fixtures, fittings and equipment:
- This could include costs like office furniture and equipment, thermal insulation, electrical installation, power points.
- These costs are treated as capital allowances and are deducted from your profits before calculating any tax.
- Therefore these are allowable for tax, and the business can pay for them.
Repairs and maintenance:
- Include costs such as painting, decorating, and general maintenance can be included in the business’ overheads.
- These costs will immediately reduce your taxable profits, and therefore reduce your business tax.
3. What about when you come to sell your home?
- The great thing about building a garden office is that you’re in your best place, in your home.
- However, when you come to sell your home, you’re now also selling your business asset (the garden office).
- Even though there are no tax implications on selling your own home, as long as it’s your only home, there are tax implications on selling business assets.
Let’s go through an example:
- The first thing is to split the garden office from the rest of the house. We would usually do this by floor area, or your estate agent or valuer may be able to put a value on just the garden office for you.
- Let’s say that the garden office has a value of £50,000 and it cost you £20,000 to build (we’re just looking at the structural costs here)
- This means that the gain on selling the garden office is £30,000, and this is what the business will pay tax on.
- The tax you’ll pay depends on your business structure. It could be between 19% and 25% if you’re a limited company, and between 18 and 28% if you’re a sole trader or partnership.
4. What about VAT?
If your business is VAT registered, and you receive proper VAT invoices in the business name for any of the costs above, we can claim the VAT back.
However, if you’re using the flat rate VAT scheme, you can only claim VAT on assets (fixtures, fittings, equipment etc) if the VAT is over £2,000.
What next?
- Check out our blog on converting your home garage into and office
- Get in touch for more detailed guidance, and support to grow your business!
