Tax Consequences of a “Garden Office”​

In today’s world, many of us find ourselves working from home which is set to continue well into the future. For some, the ability to keep their “business hat” on whist being at home can become difficult as the stresses and reality of personal life can create huge distractions.

To address this, many business owners are creating purpose-built structures in their garden in an attempt to keep their business and personal lives separate.

Read on to find out what tax consequences your Limited Company should consider before going ahead…

KEY FACTORS

Cost of the structure

The cost of the building itself will be classed as capital expenditure which will not qualify for immediate tax relief. HMRC’s technical guidance states that “no relief will be provided for work spaces within domestic settings, such as home offices.”

Cost of fixtures and fittings

The good news is that whilst there is no tax relief on the structure, the fixtures and fittings within the building will qualify for capital allowances (e.g. desks, chairs, computers). This can also be claimed on integral features such as wiring and plumbing.

Claiming VAT

If you are VAT registered you will be able to claim VAT back on fixtures and fittings purchased (unless you are using the flat rate scheme), however the VAT treatment of the building itself can be much more complex and needs to be considered carefully.

Running Costs

The business will be able to claim tax relief on its running costs which can be approached in two ways:

Rent charged from you to your Limited Company, or

A percentage of the costs of the overall running of your home

Business Rates

You do not usually need to pay business rates for home-based businesses if you only use a small part of your home (e.g. a bedroom or garden based office), or if you sell goods by post.

Benefit in Kind

If you use the office for anything other business purposes there will be a benefit in kind. This is because the Limited Co is making an asset available to their employee (you!) for free. The benefit to be assessed will be 20% of the market value of the office when it was first made available for use.

Capital Gains / Private Residence Relief

When it comes to selling your home in the future, there are a couple of things to consider

If your office is used exclusively for business purposes, you will have to pay Capital Gains Tax on the portion of the sale relating to the office. For example, if the office is 5% of the overall floor space of your home, 5% of the gain on your home will not qualify for private residence relief (PRR) and will be subject to CGT.

However, if you use the office in some personal capacity (e.g. storage for your bikes or a play area for the kids), you will gain PPR on the whole value of the sale.

There is a clear trade-off here… Using the building in a private capacity makes you eligible for Private Residents Relief, however you are also creating a benefit in kind (as mentioned above).

Care must be given to work out the best course of action for your personal situation, with regard given to your plans for the future 9e.g. when the property is likely to be sold).

Please note this advice given has been generalised and you should always seek professional advice regarding your specific circumstances before taking any action.

Published by
Stephanie Jenner
Senior Client Manager at AF Tax Solutions Ltd