Can a limited company help to pay for your garden office?

The COVID-19 crisis stretching out longer than initially predicted. With this, there has been an increase in people having to work from home for sustained periods of time. This has lead to the need for a more sustainable home office set up, evolving way beyond a laptop on the kitchen table.

People are looking towards more permanent fixtures. They need a separate workspace with no family or flatmate distractions, where you can dedicate the time and headspace needed for all those Zoom calls, presentations and emails.

If you’re fortunate enough to have the space, could the garden office be the perfect answer? If so, what are the costs involved – and how do you pay for your garden office?

How much does a garden office cost?

You could build yourself a fairly decent office shed with basic amenities such as heat, lighting and insulation for around £1,500. However, if you were looking for something a bit more on spec then you could be looking at anything between £10,000-£20,000.

On a positive note, the cost of a garden office can be put through your limited company. However, it does come with a few tax implications.

Tax benefits and relief on the costs

A garden office is considered a building for tax purposes. Although the costs of the actual construction and installation is not tax deductible, the company can pay for it.

Generally speaking, this can be the most tax efficient way to pay for the structure. Otherwise, you would have to pay for it from your personal income after tax.

Furthermore, while you can’t claim tax relief on the build itself, you should be able to claim for the costs of fixtures and fittings. This can include things like; electrics, plumbing, insulation, carpets, blinds and curtains, paintings or mirrors and lamps and lampshades.

What about VAT?

Providing your company is VAT registered, it will be able to claim back the VAT on both the cost of the construction and installation, and the contents (i.e. fixtures and fittings) of the garden office.

The company can also claim back VAT on electric, plumbing and water charges for the garden office.

If there is private use of some of the garden office, the opportunity to reclaim VAT may be restricted to only the business use element. This may need to be reviewed regularly if personal use changes over time.

Restrictions may also apply for instance if you are using the Flat Rate VAT scheme. You will only be able to claim back the VAT if you have spent over £2,000 or more on a single capital expenditure purchase. If this is applicable to your limited company, you should speak with our team who can provide you with expert VAT advice or your current advisor.

Personal use

If you plan to use your garden office for personal use, consideration will need to be given to the difference in business and personal usage. The company can only claim back the VAT for any business use.

There are also other tax considerations that may need to be addressed if the garden office is going to be used as a personal space in addition to business use.

You will also need to consider if there is any duality of purpose on purchases such as fixtures and fittings used on the building.

Garden offices and planning permission

The location and size of a garden office will determine whether you need planning permission before proceeding. Most conservatories, garages and garden offices do not need permission before building work can go ahead.  

It’s always best however to seek advice from an approved professional or your local planning authority just to ensure your plans do not require permission before going ahead.

Other things to be aware of include a potential exposure to business rates and whether it would impact your insurance cover and mortgage contract.

Tax considerations on a garden office when you sell your home

When you come to eventually sell your home, a small capital gain may arise on the proportion of your property value attributable to the land on which the garden office sits. However, if not utilised elsewhere, your annual exemption allowance (currently £12,300) may be available to offset against the gain, potentially reducing this to nil such that no capital gains tax liability is due

The company will be the entity disposing of the garden office. A small element of the sale proceeds for the disposal of your home should be attributable to the company.  Any gain arising in the company would become liable to corporation tax. Tax consequences may arise on you personally if you fail to reimburse the sale proceeds attributable to the garden office to the company. 

HMRC are increasingly taking an interest into this area. It is therefore a good idea to fully understand what your potential tax exposure might be.

Find out more

If you have any questions, please get in touch with one of our team.