Since the pandemic, there has been a growing trend for small and medium-sized business owners to set down permanent roots in a garden office. If that plants a seed of an idea in your mind, one of the first questions you might have is: “can I buy a garden office through my company”? Luckily for you, IN Accountancy is here to weed out the facts from the fiction when it comes to claiming garden office business expenses. Read on to find out more, or contact In Accountancy now if you want to turn your office space into a botany boudoir!
Can I Buy A Garden Office Through My Company?
Here at IN Accountancy, business owners regularly ask us, “can my company pay for a garden office?” or “can I claim a garden office as a business expense?” Well, as it happens, those are two similar questions that have very different answers and – like many tax-related issues – this topic is a thorny one! By all means, your limited company can pay for a garden office. Unfortunately, however, you won’t be able to claim tax relief on the office building itself.
A garden office is not tax deductible because it is a fixed asset. That means it falls under the banner of capital expenditure. So even if your outdoor office is mobile (and we would like to see that!), it is still classified as a structure. Therefore, for that reason, garden offices are not tax deductible. But don’t give up on your dream office idyll just yet, though! Because you can claim certain other garden office business expenses.
Can I Claim Tax Relief On The Initial Cost Of Materials And Construction?
Unfortunately, there is no tax relief on garden office materials or construction. Garden offices usually reside in residential property and other buildings that function as dwellings. Therefore, you are prohibited from claiming any tax relief for the initial cost of materials or construction of the garden office. Plus, there is no allowance to offset related costs like planning, legal and architecture fees. If you decide to purchase the garden office through your limited company, be aware that the cost of the office will not reduce your Corporation Tax bill.
Can I Claim Tax Relief On The Cost Of Installation Of Utilities?
Here is the good news! The installation cost for utilities – such as water, electricity or broadband – is covered by the Plant and Machinery Allowance. This covers many items, such as electrical wiring, plumbing, and thermal insulations. So the cost of installation for utilities is one area that you can claim tax relief on a garden office. These costs can be deducted from your company’s profit to subsequently reduce your Corporation Tax bill. However, please be aware that the ‘personal use’ rules will apply here too.
Can I Claim Tax Relief On The Cost Of Furnishings?
You can also claim capital allowances on the cost of any furnishings. That’s right, normal tax rules apply to the cost of furniture and any furnishings within the office, e.g. curtains, desks, carpets and any fixing e.g. shelves and cabinets which are required inside the space. This means a deduction for capital allowances can be claimed.
Can I Claim VAT Back On A Garden Office?
If your limited company is VAT registered, you may be able to reclaim VAT on the cost of the building and its contents, such as equipment, furniture and shelving. However, VAT cannot be reclaimed if there will be any significant personal use of the garden office. You may need to retain evidence of this because it is common for HMRC to assume that personal use will be involved as it is in their interests to collect more tax income.
Although unlikely, your local council could also decide to assess your garden office to determine whether you are liable to pay business rates for it or not. You will have to pay these rates if there is clear evidence that your home is used for commercial purposes, 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 those costs through small business rates relief.
If you are going to use your garden office for personal use, you can only claim back a portion of the VAT. If you use the Flat Rate VAT Scheme, you must ensure that the materials and the construction costs are invoiced separately. The materials should be bought together and charged as a single transaction amounting to £2,000 or more to reclaim them as capital assets. You cannot reclaim VAT for services, so avoid package deals where materials and installation are sold together.
Can I Claim For Ongoing Running Costs Such As Heating & Electricity?
Further good news is that ongoing running costs count as permitted garden office business expenses. So any electricity and heating costs are counted as allowable business expenses and can therefore be paid through your limited company to reduce your Corporation Tax bill. You shouldn’t need to open a separate energy account. However, you must calculate a fair percentage of the bills to allocate as business expenditure.
Purchasing A Garden Office Through My Limited Company: Advantages & Disadvantages
Buying a garden office through your limited company has definite pros and cons. Here are just some of the advantages and disadvantages to keep in mind before you make your purchase:
Advantages
- The installation cost for utilities, fixtures and fittings can be deducted to reduce your Corporation Tax bill.
- If you meet the qualifying conditions, you can recover some costs by reclaiming any VAT paid.
- You can claim ongoing running costs, such as heating and electricity, as allowable business expenses.
- If you use your garden office for personal use, no Capital Gains Tax (CGT) will apply when you sell your home.
Disadvantages
- Any personal use of your garden office will restrict your permissible allowances.
- Personal usage will also limit the amount of VAT you can reclaim.
- If your garden office is used exclusively for business, then CGT will apply.
- You will incur personal income tax plus employer and employee National Insurance due to receiving a benefit-in-kind*.
* Benefit-in-kind involves receiving anything that is not ‘wholly, exclusively, and necessary for you to perform your employment duties. HMRC has provided guidance on how this benefit is calculated: Assets made available without transfer – GOV.UK.
Conclusion
As you can see, the question of whether or not you can buy a garden office through your company is less than straightforward. In one sense, it is clearcut: your limited company can undoubtedly pay for your shiny new garden office. However, with it being a structure, don’t expect any tax relief on the garden office itself. With that said, you can claim some garden office tax relief on the installation of utilities and their ongoing running costs. Plus, you might be able to claim back VAT on the building, its contents or its materials if your company is registered for VAT
Just remember that any personal use of the office building (which is highly likely and difficult to disprove) muddies the waters further. Any tax relief on garden office utilities and running costs, not to mention any VAT claims, will need to be calculated based solely on your business usage of the premises. No mean feat! Even if you manage to use your garden office exclusively for business purposes, this leaves you open to Capital Gains Tax (based on the percentage of land your office takes up) when you come to sell your home.
The upshot is that if you want to purchase a garden office through your limited company, you should speak with your accountant first. If you were to come to IN Accountancy and ask us, “can I buy a garden office through my company?” our friendly and knowledgeable team of experts would be only too happy to offer you advice and guidance. After all, we aim to ensure you make the best financial decisions for yourself and your business.
For more information about accountancy for limited companies or to book a free consultation call, please get in touch with the IN Accountancy team. Contact us today at 0161 456 9666 or email askus@in-accountancy.co.uk.
