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Can a business fund a garden office and what are the drawbacks?
As the debate over home working, returning to the office or some form of hybrid working plays out in the wake of the pandemic, some novel, but still workable solutions have come to the fore, including the garden office.
A garden office can be a professional workspace that gives space to focus in privacy, away from the stresses of the office.
Having the office detached from the home means the office can be left behind and workers can work effectively and without interruption.
For employers who make be looking to downsize their offices, it could be an option to support employees who can be equally, or even more productive, while working away from the office.
If this is an option, firms need to be aware of taxation and other costs.
Will it be eligible for capital allowances?
If your business builds an office in a residential garden space owned by an employee or director it may not be eligible for capital allowances, such as the Structure & Building Allowance.
However, it might be possible to use capital allowances to reclaim some of the cost of installation for utilities, such as electrical wiring, plumbing or thermal insulations, via the Plant & Machinery Allowance.
Will there be Capital Gains Tax issues?
If the garden office is fixed down, then it forms part of your property. This may create Capital Gains Tax issues when you come to sell your home as it may affect how your property is classed.
If the garden office is not fixed down, then you could argue that if you were to move, you could take it with you, so the office does not form part of the premises. As such, you would be fine reclaiming the cost of the office from the limited company.
Is it liable to benefit in kind taxation?
If you intend to use your garden office for work and personal use, this may constitute a taxable benefit in kind and you would need to declare this on your personal tax return.
As you will have a separate building for the business then there is the risk that the council could assess the building for business rates – you may wish to check this with your local authority.
The building will need checking against terms of the home insurance and mortgage to ensure no breaches, costs must be addressed to the company, and if you close the company, you may have to purchase it back, where tax and VAT will need consideration.
If not sold to you, the value of the office would be ‘distributed’ to you and subject to tax.
Should you wish to buy it personally, assuming you are a higher rate taxpayer, to pay for a £20,000 office, you would need to take at least £30,000 out of the company (as a dividend taxed at 33.75 per cent), assuming you don’t personally have the cash available.
Basic rate dividends are taxed at 8.75 per cent (for earnings up to £50,000).
For an initial consultation with our experienced tax team, please contact our expert team today.
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