It is quite a popular option amongst our micro company, freelancer and contractor clients to work from a garden office, so we have outlined the tax implications of this below (this is for people trading through a Limited Company).

Garden Office

Corporation Tax

Your company can pay for the full cost of the garden office assuming it is used for business purposes, however no corporation tax deduction can be claimed on the element of the cost for the actual building as HMRC see it as a capital expense rather than a revenue expense. Costs in relation to fitting out the office with office equipment however can be claimed – these will typically include desks, chairs, shelving, computer equipment etc.

VAT

If you are VAT registered then there is the potential to claim back the VAT on all the costs as long as the invoices are in the name of the company. If the building is going to have mixed business and personal use then the VAT claim will need to be adjusted to reflect this. Also remember if you are on the VAT Flat Rate Scheme you will not be able to claim back the VAT on these costs unless you go over the £2k asset purchase threshold – best to discuss this with us as it is quite technical what will qualify and what won’t.

Personal use – income tax & national insurance

If you use the garden office for both personal and work use then there is potentially a Benefit in Kind tax (BIK) charge to consider, but if personal use is negligible this is usually not an issue. However please be aware that it can be difficult to prove no/minimal personal use to HMRC so there is a risk of a benefits in kind tax charge even with no personal use.

Capital Gains Tax

When it comes to selling your home there is a theoretical risk that part of the sale proceeds and gain made on the sale could be allocated to the garden office but if we are talking about an office that is essentially a ‘posh shed’ then this is unlikely to be an issue as the buildings value will be depreciating over time and of negligible value. If however you are building a proper bricks and mortar new building this could be an issue and we suggest you discuss the matter with us.

Affect on “Use of Home as Office” claim

If you have previously worked inside your house and had a claim put through your accounts for an element of your “use of home as office”, moving to a standalone garden office that your company has paid for will significantly reduce your claim in the future as you will no longer be able to apportion an element of the rent / mortgage interest etc. You would, however, be able to claim a fair use of some of the relevant costs such as electricity.

Business Rates

Because you will have a separate building for the business then there is the risk that the council could assess the building for business rates – different local authorities will have different opinions on this issue so if you are unsure best to check with them.

Summary

There are a several tax issues that have to be considered when buying a garden office. Generally it will probably be more tax efficient for your company to pay for it if you are already maximising your salary and dividends up to the higher tax band, but if you are not it is probably better to pay yourself further dividends (if your company can afford it) up to the higher tax band and pay for it personally. Every situation will require evaluation of all of the different tax angles so it is best to discuss the matter with a specialist, such as us!