With an ever-increasing number of people choosing to work from home – the Office for National Statistics found that there are now 4.2 million people who do so in the UK – it’s no wonder that many of the self-employed are finding imaginative ways in which to set up their home office. 
Some people are more than happy to work at their kitchen table, while some prefer a dedicated room with a full office set-up. For others, particularly those who love the idea of a 30 second commute from bed to desk, but have the constant feeling of never really leaving work because their office is just another room in the home, a garden office is the perfect option. 
 
Garden offices can range from as little as £1,000 for a DIY-style cabin with little to no insulation. Fully kitted out bespoke options with the most modern technology can be around the £30,000 mark – or more. 
 
With spring (hopefully!) just around the corner, the thought of working at the end of the garden surrounded by nature is quite appealing – not to mention the fact that you’ll no longer be confined to the four walls of your home with all matter of distractions nearby – children, pets, household errands and so on! 

Could it be tax efficient to pay for my garden office through my limited company? 

While you can certainly pay for your garden office through your limited company, as with all tax-based queries, there are lots of particulars to take into consideration, especially regarding tax relief. 
 
As a garden office is normally classed as a structure, it is not usually possible to claim tax relief on one – including planning, building and installation – even if it is mobile. However, tax relief can be obtained through capital allowances on any furniture or equipment installed into the building such as desks and shelving units. 
 
Despite thermal insulation, certain electrical wiring and plumbing technically being included within the structure of the building, you can actually claim a capital allowance on these. Running costs for the outbuilding, so electricity, gas and water can be claimed as business expenses. This also applies to repairs. 

Does this apply to garden offices that are also used privately? 

If you intend on using your garden office for personal affairs, such as somewhere for your children to play, a guest room for visitors, or even something as simple as a place for you to relax and read a book at the weekend, be aware that you will incur personal tax costs, i.e. benefits in kind. 
 
Even if you have genuinely installed a garden office for the sole use of working from home, it can be extremely difficult to prove to HMRC that you do not intend to use the outbuilding for any personal matters whatsoever, so you should bear this in mind, and be prepared to pay this benefit in kind tax. 

How about VAT benefits? 

If your company is VAT registered – and NOT under the flat rate scheme – it can pay for the purchase price of the outbuilding and its contents, including the running costs such as electrical wiring, plumbing and heating and claim back the VAT on the cost. 
 
If you are on the VAT flat rate scheme it is a little more complicated. You are not able to claim back VAT on purchases for the garden office, unless you spend over £2,000 on one single purchase of capital expenditure. Because the building will no doubt contain expenditure from both goods and services – so the actual building itself being the goods, and the installation being the services – you will require separate invoices from your suppliers to split them into the two categories. You will then be able to claim back tax from the goods, which will likely cost at least £2,000. 
 
Of course, if you’ll be using the office for any kind of personal matters, you will be required to make an adjustment for the personal usage component. 

Should I be concerned about Capital Gains Tax? 

Unless you are intending to sell your home in the foreseeable future, you shouldn’t really have to worry about capital gains tax implications just yet – you certainly shouldn’t let it stop you from building your dream garden office! 
 
If you are eventually planning on selling your home, however, you may have to take CGT into consideration. At present, tax legislation exempts your principal residence (that is, the primary location in which you live) from having to pay CGT as long as there is no exclusive business use in your property, including outbuildings. 
 
If your garden office is exclusively used for business, you will not be paying any benefit in kind tax on it – therefore, you would, as legislation currently stands, have to pay capital gains tax on it when you sell up. 
The amount of CGT you’d have to pay depends on the percentage of the land your garden office takes up. If it takes up 2.5% of your land, you would possibly have to pay 2.5% on the gain when the property is sold. 
 
It is worth bearing in mind that different types of building may be more likely to be subject to capital gains tax. If your garden office is a brand new building made up of bricks and mortar with state-of-the-art insulation and all the mod cons, it’ll devalue at a much slower pace than an upgraded wooden shed, and this may affect CGT implications. 

Will I need to get planning permission? Surely it’s just a glorified shed at the end of my garden? 

Garden offices and similar outbuildings (think greenhouses and garages – and even swimming pools and tennis courts!) are considered ‘permitted development’, i.e. permitted to be built without planning permission. 
 
This only applies, though, if you follow certain conditions, including a maximum height of two and a half metres (four in some cases) and not covering more than half of the land surrounding the original house. There are extended regulations for building a garden office within the surroundings of a listed property, so you should always check first if you are unsure as to whether you require planning permission. You can find the rest of the rules, limits and conditions here
 
It’s also worth noting that some councils, though not all, may charge business rates in addition to your usual council tax for you to run your business from an outbuilding. You would be required to contact the Valuation Office Agency to find out whether this applies to you. 

What next? 

As always, information relating to tax on our blog is generalised and does not constitute tailored advice. If you are considering investing in a garden office or outbuilding to be used for your business, we are happy to advise you on your options – each individual and each company’s situation is unique. 
 
Book a call here, or send us an email if you’d like to speak to a specialist about this topic. 
 
 
 
 
 
 
Written by: 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
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