Tax Implications of Building Office in a Garden

With more and more people now working from home, a number of our limited company clients have been asking us about the tax implications of building offices in a garden.

Under Corporation Tax, there can be no deduction for the cost of either a ready-made or a DIY build office. Even if the structure is movable, it is viewed as the place from which you operate the business rather than an asset used in the business. The good news is that any internal fittings, including certain electrics and insulation, as well as furniture, can be fully claimed as tax relief under capital allowances.

The VAT rules are different. If your business is VAT registered and not under flat rate scheme, then the business can claim the full VAT back (less any personal use %).

Running costs can also be paid for by the business, providing these can be separately identifiable eg separate electric meter.

One big caveat is where the garden office has some personal use. In fact, it could be quite difficult to argue that there is no personal use at all. This can give rise to additional tax in the following ways:

• Benefit in Kind – the value of the office times the % of personal use, would have to be declared as a benefit in kind, with the director paying income tax and limited company paying employer’s national insurance.
• On sale of the home, the office would be liable to capital gains tax, but given that the office will not have increased in value, there should be no gain arising.

Everyone has a different situation, so it is important to seek our advice about your personal circumstances to ensure the right tax treatment to suit you and your business. Note also that the treatment will be different for those who are self-employed compared to those who are limited companies.