As a result of the coronavirus pandemic, many people are considering building a garden office to make working from home more comfortable. Continue reading to discover whether your limited company can pay for your garden office.

Building an office in your garden

Building an office in your garden is a great way to create a private workspace away from the hustle and bustle of everyday life. We’ve recently received lots of questions from clients considering building a garden office and want to know what is and isn’t tax-deductible if their limited company pays for the office.

What is tax-deductible?

It is possible to claim tax relief through capital allowances on electrical wiring, plumbing and insulation for your garden office. Fixtures and fittings also qualify for tax relief so you can claim for any costs relating to shelving, office furniture and storage. Repairs, including any charges for redecoration, are also tax-deductible, as well as the cost of thermal insulation.

What is not tax-deductible?

Unfortunately, you cannot claim tax relief on the office itself as it would be classed as a capital expenditure and doesn’t count as an allowable expense against your business profits. Any costs relating to installation, design, planning or building of the office are also not tax-deductible and will need to be paid for in full by your limited company.

Can I use the office outside of work?

You can use your office space in whatever way you like, but please be aware that it will constitute a benefit in kind if you use the office in a personal capacity, for example as a gym or spare room. You will need to declare this on your tax return and may be required to pay Income Tax on the taxable benefit.

Can I claim for the additional cost of heating and lighting?

Yes, you can claim for the additional cost of lighting and heating your new office, as well as for the supply of water and a dedicated business broadband service. If your garden has a separate meter, you can deduct the cost of the utilities in full. If your garden office doesn’t have a separate meter, you will need to work out the amount used for businesses.

Can I reclaim VAT on the cost of the office?

If your business is VAT registered, you can claim back the VAT on the building’s cost and its contents. For example:

• Heating
• Plumbing
• Electrical wiring
• Office equipment
• Furniture

If you are using the Flat Rate VAT Scheme, you can only claim back the VAT if you have spent over £2,000 or more on a single capital expenditure purchase. Please be aware that you cannot claim the tax back on the cost of services, for example, if you employed someone to build the office.

Like with the cost of utility bills, if you plan to use the office for other activities, you’ll need to work out the difference in personal and business usage and only claim back the VAT for the business element.

If I sell my home, will I need to pay Capital Gains Tax on my garden office?

Legislation currently exempts your principal residence from having to pay any Capital Gains Tax (CGT), as long as there is no exclusive business use in your property (including outbuildings and sheds). Therefore, when you sell your home, you may need to pay CGT as your garden office is being used for business purposes. The amount of CGT you will need to pay will depend on the percentage of the plot of land it takes up and the size of the building.

What happens to my office if I close my limited company?

As your limited company purchased the garden office, you will need to purchase it from the business at a commercial value when you close your limited company. You will also need to account for the VAT in the sale if your company is VAT registered.

Speak to your account manager for more information

If you are a Bluebird Accountancy client and are considering building an office in your garden, please speak to your account manager. We are happy to advise you on your options!

For more information about our limited company accountancy services or to find out how we can support you and your business, please give our team a call on 0808 301 2389.