Can I buy a garden office through my limited company?
What are the tax implications to consider?
These are becoming much more frequent questions as more and more people have been required to work from home.
The following article will hopefully answer your questions and clear up any confusion.
Can I claim tax relief on the initial cost of materials and construction?
Unfortunately, there is no corporation tax relief available for the initial cost of materials or construction of the garden office.
As garden office’s usually reside in residential property and other buildings that function as a dwelling, you are prohibited from claiming any tax relief for the initial cost of materials or construction of the garden office.
Similarly, there is no allowance to offset related costs such as application fees, legal fees or architecture fees.
If you do decide to purchase the garden office through your limited company, please be aware that the cost of the office will NOT help reduce your corporation tax bill.
Can I claim tax relief on the cost of installation of utilities?
The cost of installation for utilities such as water, electricity or broadband is covered by the Plant and Machinery Allowance.
Qualifying utilities may include, but are not limited to: electrical wiring, plumbing, and thermal insulations.
This means that…
The cost of installation for utilities can be deducted from your company’s profit to reduce your corporation tax bill.
Can I reclaim any VAT?
If your limited company is VAT registered, you may be able to reclaim VAT on some costs if you pay for your garden room through your company.
- VAT cannot be reclaimed where there will be any significant personal use of the garden office
- If you will use your garden office for any personal usage, then you may only be able to claim back a portion of the VAT
For those who use the Flat Rate VAT scheme, please be aware that:
- You will need to ensure the cost of the materials and the cost of the construction are separate.
- The materials should be bought all together and charged as a single transaction amounting to £2,000 or more.
- Only capital assets for individual purchases amounting to a minimum of £2,000 can be reclaimed
- VAT cannot be reclaimed for services, so avoid package deals where materials and installation are sold together
Can I claim for ongoing running costs such as Heating & Electricity?
Electricity (lighting, broadband, computer) and heating costs are counted as allowable business expenses and therefore can be paid through your limited company to reduce your corporation tax bill.
You shouldn’t need to open a separate energy account – you just need to calculate a fair percentage of the bills to allocate as business expenditure.
What are the implications of purchasing a garden office through my limited company?
- The cost of installation for utilities as well as for other fixtures and fittings can be deducted from your company’s profit to reduce your corporation tax bill
- If you meet the qualifying conditions, you can recover some costs through reclaiming any VAT paid
- You can claim on ongoing running costs such as heating and electricity since they’re counted as allowable business expenses
- If you use your garden office for personal usage, no CGT (Capital Gains Tax) will apply
- If you use your garden office for personal usage of any kind, this will mean automatic restrictions to the allowances you’re able to use, as well as limiting the amount of VAT you can reclaim
- It is likely that you will incur personal income tax and both employer and employee National Insurance due to receiving benefit-in-kind*
- If your garden office was exclusively used for business only, then CGT will apply.
*Benefit-in-kind involves receiving anything that is not ‘wholly, exclusively, and necessary’ for you to perform your employment duties.
HMRC have provided some guidance on how this benefit would be calculated: Assets made available without transfer – GOV.UK
Other points to consider
- If you decide that no personal use will be allowed on the garden office, you may need to retain evidence of this.
- It’s common for HMRC to assume that there is personal use as it is in their interest to collect more tax income.
- Although unlikely, your local council could want to assess your garden office to determine whether its liable to pay business rates. You would have to pay these rates if there is clear evidence that your home has commercial use, such as a distinct and separate area for business. If you do end up having to pay business rates, you should be able to alleviate the cost through small business rates relief.
Still unsure of something?
Please contact us here if you have any queries or need some friendly advice – we’d be happy to help.
Alternatively, come and visit us in Hazel Grove for no obligation coffee!