Can you pay for your garden office through your Limited Company?
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.
Being classed as a capital expense will mean that the ‘property’ won’t qualify for tax relief right away, but will however be classed as an allowable expense against your business’ profits.
The other tax reliefs you can benefit from
Capital expense isn’t the only tax relief you can benefit from:
Capital Allowance
Whilst some of the costs associated with the setup, installation and equipping of your garden office aren’t claimable, 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:
- Plant and machinery
- Thermal insulation
- Personal security
- Integral features – electrical systems including lighting
- Space or water heating systems
- Powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system
- External solar shading
- Kitchen equipment and fittings
- Washbasins / sinks / sanitary ware
- Furniture and furnishing (eg curtains, desks, etc)
- Fixings (ie shelves and systems)
- Sound insulation
- Computer, telecommunication and surveillance systems including their specific wiring
- Fire alarm systems and other equipment for extinguishing or containing fires and burglar alarm systems
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 or 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 along with paying income tax.
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. There’s no rule that includes personal use, so you don’t have to split personal versus business use for the goods.
You’re not however able to claim for services, so you’re able to claim for your office shed, but not for a tradesman to build or deliver it for example.
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. Your Aardvark Client Director will be able to assist you further on this.
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 or income tax relief.
Anything else to consider?
We’d always advise talking to your Client Director here at Aardvark 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. We would advise reaching out to us as we will be able to calculate what you can expect to pay when it comes to having a garden office based on your specific circumstances.
Note: All the information and advice in this blog post was correct at the time of writing.
