The Garden Office

Everything you need to know about claiming tax relief if you are planning an office in the garden.

Small business owners have very often worked from home and so the question regularly arises: ‘I’m thinking of putting a shed in the garden for work. Should I do it through the business?’.

As we will see it is not a simple question to answer as it touches on quite a few different taxes: Business Tax, VAT, Capital Gains Tax, Benefit in Kind Tax (P11d) and also Business Rates.

business tax

Business owners looking for a tax break on both the running costs of the garden office and the intial capital outlay. The first thing to understand is that these two elements are dealt with separately for business tax.

Capital Outlay

The starting point for a business tax calculation is profit which means income minus expenditure. However for accountants and HMRC the purchase of anything that has a lasting life is not expenditure but an asset.

Assets do attract tax deductions but through Capital Allowances and under Capital Allowances the amount of deduction depends on the type of asset bought.

This is the first problem we come up against with the garden office idea because buildings are a category of Capital Allowance that attract no tax deduction*.

That said some of the costs of installation may be tax deductible - notably electrics, plumbing and insulation.

Running Costs

Whether or not your home office is in the garden or in your home, a fair proportion of the running costs can be charged to the company for its usage.

VAT

If the business is VAT registered there is obviously a very clear advantage to the structure through the business because the VAT paid can be reclaimed.

However there are a few consequences and restrictions to this that it is important to understand. The structure must be owned by the company to get the VAT deduction and if there is any significant personal use of the structure the VAT is not reclaimable. Even insignificant use means that the VAT deduction is restricted.

The ownership by the company of the structure also brings into some other problems as we set out below.

capital gains tax

Mostly Capital Gains Tax is not something to worry about when you sell your home because of something called Private Residence Relief. However the company owned garden office is not part of your private residence and therefore we need to think about Capital Gains Tax when you sell the property.

A number of factors will come into play at this point: whether the office increased the value of the property; whether there was private use; whether it could be dismantled and taken with you. However the worst case scenario is that you pay CGT on a proportion of the sale.

Benefit in kind tax (p11d)

If the company owns the structure and there is personal use, we have the problem of a benefit in kind that has to be taxed under P11d.

business rates

And finally there is also the possibility that the local council may decide that the garden office is taxable under business rates.

conclusion

Business owners often conclude that the main benefit would be VAT but that the VAT gain is not worth the complications. For these reasons we have yet to see one put the capital expenditure through the company.

*Although a 3% Structure and Building Allowance was introduced in 2018 this prohibits any spending on residential properties.