The Covid-19 pandemic changed our lives in many ways – some temporary and some permanent. Lockdowns, hopefully, have become a thing of the past. But the way we live our lives, including our working lives, has changed irrevocably. Many businesses, for example, have discovered that it’s possible for whole teams to work remotely. And others that initially insisted on employees returning to the office full time have since adopted a hybrid model. The result? More and more business owners and employees are considering investing in a garden office.
The appeal of a garden office is easy to see. One can only work on the dining table, coffee table, or in extreme cases the ironing board, for so long. The prospect of a fully-fledged garden office, with an ergonomic desk and chair, away from the distractions of the house has come to represent home-working nirvana. But how are you going to pay for this?
As a small business owner, you might think it’s a good idea to put the costs of installing a garden office directly through your business. However, as with most decisions involving not insignificant sums of money, it’s not as straightforward as buying a company van or computer due to the different tax considerations. Therefore, it’s vital to understand the pros and cons before the business puts down a deposit.
The first thing to know is that HMRC will see your new garden office as a capital cost, and a structure from which you operate, rather than an ‘expense’ or item of ‘equipment’. Capital allowances, which are normally the main mechanism for businesses to enjoy tax relief when purchasing equipment, won’t help you much as structures and buildings are considered to be a setting in which you do business rather than separate ‘plant and machinery’.
Therefore, the cost of the office structure and installation won’t be deductible from your profits. This will be a blow if you expected tax relief to help reduce the overall investment. You’ll have to pay all costs related to design, planning, building and installation in full.
It’s the same story with the new Structure and Building Allowances (SBA) which doesn’t apply on residential sites, even if the building is used exclusively for business.
There are other cons to be aware of, too. If you were to use your company-owned garden office as a gym, play area, or other non-work related activity, this may be considered as a taxable benefit in kind; therefore the business will pay National Insurance and you’ll need to declare it on your tax return and may end up paying more income tax.
Finally, there will inevitably be costs if you wind up your business or sell your home. After all, if your business pays for your garden office then it technically owns it. This means you’ll have to buy it back at a commercial value if you wind up your business or, if you move, it will be included as part of the sale of the house, both of which could result in a Capital Gain on which tax may be payable. You may be able to take it with you if you move, but remember that there will be costs of having it dismantled and/or transported to your new house and reinstalled.
Thankfully, it’s not all bad news. If your company pays for your garden office then it can reclaim the VAT incurred on the cost of the build (assuming it’s VAT registered). That’s obviously a big saving of 20%. If you’re a VAT-registered sole trader, you will only be able to claim back a percentage of the VAT based on what proportion of time you spend working in your garden office, rather than using it to enjoy other pursuits.
Paying for your garden office through your business also entitles you to tax relief on certain items via capital allowances. For example, you can claim costs for setup expenditures like installing power, electrical wiring, and thermal insulation. Fixtures, fittings, furnishing and furniture also qualify so you can claim back VAT and capital allowances on those, too. Finally, running costs like heating, lighting, and broadband and even repairs and redecoration are tax-deductible.
Do your research
The pros and cons of running a garden office through your business will obviously depend on your individual position. For example, it’s a good idea to contact your local authority at the planning stage to find out if you’ll need to pay business rates. It’s also worth contacting your mortgage provider and insurers to see if adding a garden office might have consequences for your payments. These can be some of the hidden costs of having a garden office.
For the self-employed, paying for your garden office through your business won’t make much practical difference. After all, if you’re self-employed then you are the business; therefore you can’t do things like charge yourself rent, which you could do if you operate through a limited company. And as for employees, it’s completely up to your employers whether they make a contribution towards your garden office. You won’t have much say or enjoy any financial benefits.
The bottom line
There’s no right or wrong when it comes to putting a garden office through your business. It’s simply a matter of weighing up whether the potential benefits are worth it to you. This will depend on where you live, the type of business you run, your future plans, and whether you want your garden office to double-up as a garden room or other residential space. If it’s the latter, you might be better off keeping your garden office as a residential building and be done with it.
Because the initial cost of constructing a garden office can’t be claimed as ‘expenses’, many people will choose the alternative of paying for it out of their personal finances. Others decide to designate an existing garden building as a ‘commercial space’ instead – although, once again, it might be best to keep this as a private area if you’re using it to entertain or put your feet up at weekends – there is still the possibility of claiming business expenses, such as any dedicated business broadband, office furniture etc.
The important thing, of course, is to fully understand the pitfalls as well as the perks. After all, you could up losing more money in taxes, fines, or legal fees if you get things wrong or mistakenly fall foul of the rules. Our advice, therefore, would be to seek expert advice before making a final decision. Naturally, we’ll be here to help if you need us.