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Spondoo Accounting
Call for Assistance: 02033 259 341
Spondoo Accounting

Building an Office in the Garden - what tax can I claim?

August 2, 2022

If you are running your business from home, this article attempts to explain the tax implications of: 

  • Building an office in your garden and paying for the costs via your limited company, or via your self-employment business 
  • Ongoing running costs of this purpose-built workspace in the garden 

 

Corporation Tax for Limited Companies and Income Tax for Sole Traders 

The Build itself

The costs for the construction, architectural planning, and legal fees can indeed be paid from the business but only certain costs attract tax relief (albeit only via Captial Allowances) as detailed below: 

Components that attract relief via Capital Allowances: 

  • Fixtures and fittings – Furniture, Shelves, Curtains 
  • Computer equipment 
  • Installation of lighting, heating, air conditioning and insulation costs 

The above cost should be covered under the Annual Investment Allowance and therefore attract immediate relief on your CT600 company, or SA100 tax returns. 

Components that do not attract tax relief via your business: 

  • Design, architectural planning, and legal fees 
  • Building contractor labour costs 
  • Building Materials 
  • Apportionment of land value 

Note – the Structures & Building Allowance (SBA) cannot apply to garden offices. 

Ongoing Costs 

Once the office is up and running you can then claim the costs for electricity, heating and water.  

!Private Usage Warning! – you will need to be cautious about applying an appropriate split in these bills between your main private residence and this garden office (I.e. business premises). It is advisable to obtain itemised bills from your utility provider or have a robust method for pro-rating the costs between the business and non-business elements. 

Value Added Tax (VAT) 

The Build itself 

The best part of building a Garden Office via your business is that you are able to reclaim the VAT you have incurred on the building costs itself (unlike Corporation Tax or Income Tax).  

!Private Usage Warning! – if there is a private usage for the premises, this VAT claim on the initial build costs will need to be reduced in proportion to the business usage only 

Ongoing Costs 

You can also claim the VAT on the ongoing costs for utilities and maintenance of the purpose-built structure. 

!Private Usage Warning! – if there is a private usage for the premises, this VAT claim for going costs will need to be reduced in proportion to the business usage only 

Potential Pitfalls 

Building your garden office of course has its tax benefits, but it is important review your entire financial situation before making this decision as it can have some unforeseen consequences. 

We have listed below some of the main areas to watch out for: 

Capital Gains Tax 

If you own your own home, it is likely that you will qualify for Private Residence Relief, which means you will not need to pay tax if you sell your house for more than your original purchase price (Captial Gains). However, by claiming the costs of building or running your offices via your business, you are essentially informing HMRC that part of your residential address is in fact a business premises. 

This means that the portion of the property that relates to the garden office will not qualify Private Residence Relief and may therefore be subject to Capital Gains Tax. The tax impact of this needs assessed by a professional as other factors will need to be considered. 

Note – if you are building an office in a rented home, this Captial Tax Gains pitfall will not impact you. 

Business Rates 

By building and working from your garden office, and claiming the costs via your business, it is likely that you will be liable to Business Rates. However, it is likely that your garden office will qualify for Small Business Relief, on the basis that the Rateable Value will be below £12,000 to £15,000 per annum. 

As Business Rates are calculated on the Rateable Value of the business, it is advisable that you contact the Valuations Office Agency (VOA) to get this clarified. 

 

If you need an accountant that is experienced working with directors, business owners, employees and contractors that are working from home, please get in contact.

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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