Business Expenses and Tax On Your Garden Office
Having a garden office can be the perfect solution for someone looking to run or perhaps already running a business from their home. These garden structures offer a space away from the main property and home; this means they provide a quiet, professional area to work without the distraction of everyday home life.
The considerable advantages to having a garden office may seem never-ending, but there are financial implications you should consider. Here we look at the tax implications and other business expenses to consider when using a garden office as your business base.
It won’t matter if you run a limited company or are a sole trader; you will have to think about whether you will be using your garden building strictly as an office or perhaps moonlighting it as a garden bar or place for guests to sleep. As a general rule, you can claim the VAT back for the cost of the building if your business is VAT registered. However, suppose the structure is intended for multiple uses; in that case, you will only be able to claim a percentage of VAT relative to the amount of time the garden building is used as an office.
If you use your garden building as an office Monday to Friday, but on the weekends, it is used as a space for doing yoga or entertaining guests, you would only be able to claim for 5/7 or approximately 70% of the total cost VAT.
Installation and Construction
While you can apply for a VAT refund on the cost of the building, the cost of actually constructing or installing a garden office cannot be deducted from your business profits as it is not tax-deductible. This restriction applies to any of the fees and costs associated with the installation. Those fees might include things like the initial decoration of delivery charges.
Whether you purchase a ready-made structure or even build the entire garden office yourself won’t matter. Even though a garden room is considered a moveable structure, it still counts as premises rather than business equipment.
Equipment, furniture and fixings
The cost of installation may fall solely on you, but there is some good news. Anything you purchase for your garden office, chairs, desks, other furniture or storage items and IT equipment, for example, will count as business expenses. These items will be tax-deductible, as will things like thermal insulation and electrical work. You cannot claim for the initial decoration of your garden office, but when the times come to redecorate, you can take off those expenses. Always make sure you get fully itemised bills and receipts as you will need them as evidence when the times comes.
Utilities, of course, include gas, electricity and water. If your office has a dedicated landline, that will be completely deductible; however, you will need to calculate using the percentage rule explained below if you use your personal mobile or landline.
If your garden office has its own utility meter, then you can deduct the total costs. However, if the meter is shared with your main property, then you will only be able to deduct the percentage used by your garden office. If you calculate the total cost for utilities on all the rooms in your property and then divide by the total number of rooms, that should give you an estimate. Remember, if one room in your primary property is a guest room you rarely enter, that should not be included in the calculation.
So, if your home has nine rooms and a garden office, you can then claim for 10% of the total utility costs; however, this does get trickier if you’re using the garden office for multipurpose.
What if I use my garden office as a guest room?
If you let a guest crash in your garden office as a one-off occurrence, you don’t need to worry; but if you regularly use it as a room for guests to sleep in, this is personal use. This personal use will affect the amount you can claim in expenses, etcetera.
This becomes even more relevant if you are a sole trader. You will need to prove that you are strictly using the garden building as an office if you want to be able to claim the maximum tax deductions available.
Do I need to pay capital gains tax if I sell my home?
Whilst it’s common knowledge that a garden room can increase your home’s overall property, the actual garden room’s value in isolation will decrease. Therefore, there is no profit to be made off the garden office itself at the time of sale. Whilst technically, if your garden office is a company asset, then you would need to pay capital gains tax; the gain itself would be unlikely to meet the requirements of taxation.
Do I need to pay business rates on a garden office?
The rules and reliefs surrounding business rates vary among different local authorities. Therefore your best bet is to speak to your local authority yourself and check the regulations for your area. It is, therefore, advisable that you check with your local authority to find out where you stand regarding business rates for your garden office. If your garden office does attract business rates, there are some reliefs available for small business specifically. There are also some specific reliefs for particular economic areas and certain rural locations.
Whilst there are some things to think about concerning the financial implications of a garden office and home business, there are many advantages. One of the top perks might be removing a commute and the safety and security of being located at home. The flexibility of running your own business is amplified when your office is only a hop, skip and jump away. In addition, having a separate space to work from allows you to more easily “switch off” when you close your garden office doors and return to your main home. In addition, having a separate professional space helps with the image you are presenting to your clients.
Please look at the packages we offer and let us help you create the perfect garden office.