Can I put a garden office through my limited company?
With more and more people working from home, one question that we often get asked is whether a company can pay for a garden office to be built in a director’s garden. And, if so, what tax reliefs might be available. There are a lot of areas to consider with this– it is important to get specialist advice if you are unsure. Here are the key areas to consider:
Purchasing the office personally
The funds would need to be made personally from the director- this could mean extra taxes on any additional dividends/salary.
Tax reliefs for the installation will not be available (capital allowances or VAT)
The individual should be able to recover business-related running costs, which the business can then claim tax relief on.
The business can also pay for any furnishings or equipment that the individual will need to carry out their work and claim capital allowances on the cost (assuming private use is insignificant).
Capital gains tax may be due when the individual comes to sell their home (if the asset is still in place at the time of sale). Private residence relief (PRR) is denied on any part of a house which is used exclusively for the business. To avoid this situation, the new office would need to have regular residential use (e.g. doubling as a playroom).
Purchasing the office through the company
All costs would be purchased through the company therefore saving the director any personal taxes on additional dividends/salary.
There are no capital allowances available on the actual structure itself (capital allowances are a type of expense claimed on business assets).
Planning expenses, legal fees or design fees will not be deductible for corporation tax as they are capital costs.
The business however can claim capital allowances on integral features such as wiring and plumbing, as well as any necessary furniture to kit it out for business use.
If the business is VAT registered, they may recover the VAT on various costs of the construction and installation but this would need to be considered in more detail based on the exact nature of the supply and intended use of the office.
The business can claim the business-related running costs of the office.
If there is any private use, they will need to restrict the capital allowances and VAT claims, as well as restrictions to the proportion of running costs claimed.
If there is any private use, then a benefit in kind charge would apply to the director. The cash equivalent of the office each year is likely to be assessed as a benefit at 20% of the cost of the asset when new, which could be quite significant each year. You would need to be able to prove that there is no private use if you do not apply this charge.
On the sale of the house, if the office is going to be relocated then the individual only needs to consider if there is any PRR restriction on the land where the pod was located due to business use. If the office is to be sold as part of the house sale then in addition to this, the business will need to receive some proceeds for the sale of its asset. It may make sense to transfer the office (at market value) to the homeowner prior to sale to avoid complications, which could trigger a tax charge in the business.
Other considerations
Whether planning permission is required, especially if it is intended 100% for business use. It is worth seeking advice and confirming this position with your local council.
Whether business rates are applicable and if so, whether the business will qualify for small business rates relief. Again, it is worth checking this with your local council.