We have recently received many queries from contractors who are considering building an office and want to know whether their limited company can pay for it.
The short answer is yes, it can. However, it’s unlikely you will be able to claim tax relief on the office itself as it would be classed as capital expenditure. And, as a structure (even if it’s only a mobile one), it doesn’t count as an allowable expense against your business profits. If you are considering building a garden office, be prepared that any costs relating to design, planning, building and installation will need to be paid for in full. This doesn’t mean that your limited company can’t pay for it, just that any of the costs listed above will not be tax-deductible.
However, you can claim tax relief through capital allowances on insulation, electrical wiring, and plumbing. Fixtures and fittings also qualify for tax relief so you can claim for any costs relating to your office furniture, shelves, or storage for your office. The cost of thermal insulation also qualifies for capital allowances even where it forms part of the structure.
Does this apply to offices that have a dual purpose?
If you intend to use your garden office for work and personal uses, such as a guest room, gym or play area for your children, this may constitute a taxable benefit in kind. Please be aware that you will be required to pay Income Tax on the taxable benefit, and you will need to declare this is on your personal tax return. If you are unsure, always ask your accountant for specific advice.
Can utility bills be deducted?
It is possible to claim for the additional costs of heating and lighting your new workspace, as well as for a dedicated business broadband service and the supply of water. If your garden has a separate meter, you can deduct the utilities’ cost in full. However, if this is not the case, you’ll need to establish the proportion of the household costs used for business purposes. Repairs, including redecoration costs, are also tax-deductible.
Can I reclaim VAT on the cost of a garden office?
If your business is VAT registered, you can claim back the VAT on the cost of both the building’s contents (shelving, furniture, and equipment) and the building itself. You can also claim back the VAT on charges for heating, plumbing and electrical wiring.
Like with the utility bills, if you plan to use the office for non-work-related activities, you’ll need to work out the business and personal usage difference and only claim back the VAT for the business element.
Will I need to pay Capital Gains Tax on my garden office if I sell my home?
If you plan on selling your home, you should consider this as you may need to pay Capital Gains Tax (CGT) on your garden office. Legislation currently exempts your principal residence from having to pay any CGT, if there is no exclusive business use in your property (including sheds and outbuildings). As your garden office is being used for business purposes, you may need to pay CGT when you come to sell your house. The amount due would depend on the building’s size and the percentage of the plot of land it takes up.
What happens if I close my limited company?
If you decide to close your limited company in the future, you will need to consider the cost of buying back the garden office. As your limited company bought the office, it is technically owned by your company, and you will need to purchase it from the business at a commercial value – even if you plan on knocking it down. Please be aware that if your company is VAT registered, this will also need to be accounted for in the sale.
