Claiming Tax Relief on a Garden Office

Working from home has become one of the most used buzz phrases since the start of the pandemic. If you work for yourself, or run your own business and you were previously office-based, or made use of hot-desking or flexible workspaces, you may have found yourself joining the masses by relocating to home based working. But is it working for you?

If you regularly find yourself getting distracted by family life, you are struggling for a space within the home to call your own, or are finding it a challenge to strike the right work life balance, it could be time to consider a garden office.

If you have the space outside, a garden office is the ideal compromise. It means you can still take advantage of the safety and savings aspects of a zero-miles commute, whilst enjoying your own dedicated workspace. A place you can lock the door to at the end of the day and leave behind the pressures of work. Somewhere you can concentrate and take calls or hold video meetings in private. A true space of your own.

Can my company pay for a garden office installation?

It may interest you to learn that your company can actually legitimately pay for a garden office. Classed as capital expenditure, the structure may not qualify for immediate tax relief and isn’t allowable as an expense against business profits, but you will be able to process the cost for design, planning, construction and initial decoration through your company expenditure.

Fixtures and fittings, however, do qualify for tax relief through capital expenditure, as does the cost of installing power, lighting, heating and internet. Thermal insulation will also qualify for tax relief, even though it forms part of the initial construction.

Even better news is that a garden building will keep on giving back in future years, as your running costs, including lighting, heating, water and internet, providing they are separately billed, will also be claimable, as will any repairs required.

Is it possible to claim VAT back on a garden office?

If your company is VAT registered and using the standard scheme rather than the Flat Rate VAT Scheme, then you will be able to claim back the VAT on the cost of building your garden office. However, if you are doubling up the use of the structure, for example as a games room or gym, or any other personal use, then the VAT relief will come on a pro-rata basis.

For example, if you use the garden office five days a week for work, then for personal use at the weekends, then you will only be able to claim back 5/7 of the VAT. Personal use may also create a benefit in kind.

If you are using the Flat Rate Scheme, then you will be able to claim for capital expenditure on goods over £2,000. There will be no restrictions on personal use, but you will only be able to claim for goods, rather than services.

So if you purchase a readymade timber building to use as an office, this should be classed as goods and you can reclaim the VAT paid. However, if you pay a company to construct the building and connect up utilities, that will be classed as a service. Be sure to obtain detailed, itemised invoices from your supplier if you are considering claiming back the VAT.

How does personal use create a benefit in kind?

If your company has paid for your garden office, and then you also use it for personal activities, then this may constitute a taxable benefit in kind. If this is the case you may need to complete a P11D, and pay income tax on the taxable benefit.

It is vital to ask your bookkeeper or accountant for personalised advice in these circumstances.

Will I have to pay business rates on my garden office?

HMRC’s guidance of business rates for working from home states that you won’t usually have to pay if you use a small part of your home for your business. 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 beauty salon.

Depending upon the scope and type of building, your garden office will sit somewhere in between these two examples, so it is usually wise to seek advice from your local authority to ascertain their position.

Will my garden office be subject to Capital Gains Tax?

Capital Gains Tax (CGT) will only come into play if you sell your home. Your principle residence is exempt from Capital Gains Tax, providing there is no exclusive business use on any part of it. So, if you only use your garden office for business purposes, then you may have to pay Capital Gains Tax on the relevant proportion of any gains when you sell your home.

For example, if the office makes up 3 per cent of your total floor space, then that will be the percentage that is subject to CGT. However, if the office is mixed use, there will be no CGT liability. It is therefore worth weighing up whether it is worth letting the children use it as a games room at the weekend, depending on how much you will lose in unclaimed VAT and income tax for your benefit in kind. If you are thinking of moving in the fairly near future, have your bookkeeper or accountant do the calculations for you to see which is the best strategy for your individual situation.

Need advice on the financial aspects of setting up a garden office? Talk to Office Assistants.

Considering installing a garden office? If you would like some help in working out precisely what you can and can’t claim, and the best way of approaching the investment, you are welcome to talk to Office Assistants, qualified bookkeepers who always put our clients’ best interests at the heart of all we do.

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