How can you pay for your garden office?

As many of us have been successfully working from home for the last year, our whole approach to work has changed. With Nationwide Building Society allowing 13,000 staff to choose if they would prefer to work from home when the Covid-19 restrictions end, and Twitter announcing that staff could continue working from home “forever”. It comes as no surprise that the boom in popularity of garden offices has increased.

You may find that you are enjoying the flexibility of running your business from your home. However, any long-term plans to work from your home depend on having a suitable environment to promote good working habits. While working from your kitchen table might work occasionally or for a few months when there are no other options, it's not a long-term workable solution. So perhaps it is worth considering a commute again, but this time to the end of your garden.

Garden offices can offer the best of both worlds if you are lucky enough to have space. The obvious benefits are removing the commute, scheduling your day around personal activities, and concentrating more fully on your work without the distraction of office chatter and interruption. At the same time, you can also utilise the benefits of “going to work”, with no distractions that working from home can give. You can also make the workspace dedicated to you and your business.

So, how can you put the cost of a garden office through the company?

We have split the information into 3 parts to cover different circumstances:

  • Those who are self-employed
  • Those trading through a Limited Company with the invoice for the office building being made out to the Company
  • Those trading through a Limited Company, with the invoice for the office building being made out to you personally

If you are self-employed

The first thing to note is that the actual construction of the office building is not tax deductible against your business profits. HMRC regard it as somewhere that you trade and therefore it is not allowable for tax. However, if you're VAT registered, VAT can be reclaimed. To avoid paying unnecessary Capital Gains Tax (CGT), when you sell the property, you could restrict the VAT reclaim to a sensible amount that fairly reflects the amount of private use that you intend to use it for. If the building is used EXCLUSIVELY for business use, you have then taken away your right to claim “Main Residence Relief” when you sell your property and therefore may end up with an unexpected CGT bill.

Any costs, such as electrics, alarm, desks, plumbing, and stud walls, can be claimed against your business profits as what is termed Capital Allowances. VAT can also be reclaimed on these costs.

Use of home costs can also be reclaimed against business profits on a proportion of running costs for your home, generally apportioned to a relevant floor area compared to the overall size of your house. We would always recommend some sort of private use restriction to avoid the CGT surprise.

Limited Company (office building Invoice made out to the company)

This means the office building belongs to the Company, not you. The cost of the structure would therefore be shown as a capital asset on the Balance Sheet, but not a tax deductible one. As it's a company asset it can be paid for by the Company and VAT can be reclaimed on the construction costs. This would also include costs of fitting out and turning into a suitable office space.

However, when the cabin is used privately, then the company should charge rent to you plus VAT or you would suffer a 'Benefit in Kind' charge.

Running costs of the cabin could be claimed on an annual basis in the accounts.

When the house is sold, if the cabin is sold with the property, then Corporation Tax would be payable on any relevant gain, with a sensible proportion of the house proceeds being apportioned to the office building and paid to the company.

Limited Company (office building invoice made out to the Director)

Here, the cost of the office building is paid for privately and is not an asset of the Company. You need to be careful how you fund this as dividend tax could become payable. Point to note - no VAT can be reclaimed on the construction costs.

Any alterations that need to be made can be paid for by the Company and VAT reclaimed as long as the invoice is made out to the Company. This could include installing an alarm, fitting of desks, chairs, or maybe enhanced electrical power.

The Director would charge rent to the Company for its use, which would be allowable against profits in the Company. The rent would be taxable in the hands of the Director, but against that, certain 'use of home' costs can be reclaimed to reduce the profit.

If used wholly for business then this could lead to a proportion of the gain being chargeable to CGT when the property sold, so advisable to claim some private restriction when calculating any rents that may be charged to the company.

If you have any questions, the team at BKB are here to help you. Just give us a call.

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