Is it possible to treat a garden office as a business expense to get tax relief?

Question, I run a small limited company, mainly working from home, and I am considering building a garden office and am wondering if I can claim some or all of the costs as a business expense to save tax?

Answer, July 2016

An increasing number of people are working from home and garden offices are becoming a popular option, however the tax issues of building an office in your garden can be complicated.

Building costs and corporation tax

A large proportion of the costs of building the garden office are likely to be structural building work – although this can be paid by your company (make sure the invoices are addressed to the company), your company will actually not save corporation tax on them due to special rules for capital allowances.

However there will be some costs on which your company will be able to get corporation tax relief – usually in full in the year of purchase through something called the annual investment allowance which is a type of capital allowance – these may include:

  • office and computer equipment
  • electrical systems
  • lighting
  • air conditioning
  • heating and water systems
  • insulation

garden office

VAT reclaim

If your company is VAT registered you should be able to claim back the VAT on all your costs (again make sure the invoices are made out to your company), however if you will be using the garden office for both personal and business use you will need to make an adjustment for the personal use element.

If you are on the VAT flat rate scheme then it is a little trickier – with the flat rate scheme you cannot claim back VAT on purchases unless you spend £2k or more on a single purchase of capital expenditure goods.

The cost of the garden office is likely to contain a mix of goods (the office building) and services (the installation), so ideally you will need to get separate invoices from the supplier to split out the goods from the services, and you can then claim back the VAT on the goods element, assuming the invoice totals £2k or more.

Personal tax impact – Benefits in kind

If you use the garden office for personal use, then there will be a personal tax impact of this benefit in kind, unless your personal use is very minimal. 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

If in the future you sell your home then you will need to consider if there is any capital gain that should be allocated to the home 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 (rather than increasing) and will be of negligible value.

If however you are building a proper bricks and mortar new building this could be an issue and would be worth discussing with a tax advisor.

Business rates

With your garden office being separated from your home. there is a risk that your local council could charge you business rates for running your business from the building –  local councils are likely to have varying views on this so if you are unsure, best to check with them.

Planning permission

A non-tax consideration that we wanted to point out – you may need to consider whether your garden office will require planning permission – best to discuss this with your local councils planning department.