Create An Office At Home

As more and more people are now working from home, the desire for a designated workspace has become a priority for many. The past few months have forced many workers to fill up the kitchen table and any other free working space with laptops, cables, microphones and extra screens out of necessity but we know this isn’t a sustainable way of working, particularly when you have family sharing your space too.

With so little internal space available in the family home, many people are now seeking to build a permanent home office, but with extensions and loft conversion costs going through the roof (excuse the pun), many people are turning to building offices in the garden. In this blog, we explore the tax implications for those running a business from home and how a garden office can affect your tax position.

What tax relief can be claimed?

A garden office/outbuilding is normally considered a structure and therefore it is not possible to claim tax relief for the costs of the building/shed, even if it is moveable. This includes all costs of any planning, foundation work and installation.

However, it is usually possible to claim tax relief by way of capital allowances on some fixtures and fittings, such as those specifically required to enable you to do your work. For example this could be WIFI cabling, thermal insulation, CCTV and specialised lighting, but would not cover usual integral fittings like doors and floors and ordinary wiring.You can also claim capital allowances on furniture and equipment needed for the office for work purposes, such as office equipment, shelving, desks and seating. Usually you would claim capital allowances for the full cost in the year of purchase, by way of Annual Investment Allowances (AIA) subject to a cap (temporarily increased to £1 million up to 31 December 2020, prorated in line with your accounting period). However you wouldn’t purchase through a company if there is expected to be personal use on the outbuilding. In addition to capital allowances, tax relief can be claimed on the revenue costs incurred for the running of the garden office, such as electricity for lighting and heating, and for the general repairs and upkeep.

Can I claim VAT?

VAT incurred on the cost of the structure itself or any furnishings or furniture can be reclaimed if it is solely used for business, and VAT can also be reclaimed on the ongoing running costs. You must ensure there is a VAT invoice addressed to the business to support any claim, as per the usual VAT rules.

What personal tax might I pay?

If a garden office is used exclusively for business, and if you are a company, you will not pay any benefit in kind tax on it. Benefits in kind are chargeable to tax when a company pays for personal expenses for an employee or director. If the garden building was incurred by a company and it was also used personally for other means or by other members of the family, this would then trigger a benefit in kind charge and the tax due could well outweigh any tax savings, dependent on circumstances.

Also if you were to include the building cost as a business cost, you may have to pay capital gains tax on it when you sell the house if there is a value in it.  The amount you’d pay would depend on the percentage of the land the garden office takes up.  If your garden office is made up of bricks and mortar with state-of-the-art kit out with all the mod-cons, it’ll devalue at a much slower pace than a modernised wooden shed, thus affecting CGT implications more. 

Could I rent the new office space to my business?

You could set up a rental agreement so that your business pays you rent for the office space but beware you would be taxed in the rental income you receive. This could still be beneficial for some, however careful consideration needs to be made on a case by case basis to ensure that you are not left with a capital gains tax charge on selling.

Everyone has a different situation so it is important to take advice about your personal circumstances to ensure the right tax treatment to suit you and your business. The treatment will be different for those who are self employed compared to those who are limited companies. There is still some tax savings to be made but careful planning is require.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.