As the new ‘normal’ sees more and more individuals working from home, we wanted to share with you the tax implications of buying a garden office through your limited company; for both you and the company:
The business will be able to reclaim all the VAT when it is solely used for business use; where there is an element of private use the VAT reclaim will need to be restricted.
The business should be able claim capital allowances on items such as heating or lighting as well as office furniture.
Business property Rates
HMRC state you do not usually have to pay business rates if you use a small part of your home for business such as an office and you only sell goods via post. They state you may need to pay business rates in circumstances where you sell goods or provide services at home, other people who don’t live in the property work at the premises or you make changes to your home for your business, for example, you change your garage into a hairdressers.
Where there is no private use, you solely use the office yourself and have no client meetings there is a strong argument the office will not attract business property rates.
Where there is private use, we consider this to be similar as using a room in your house and therefore no business rate should apply; however other factors could have a bearing on this outcome as described in above scenario.
All opinions are however subjective and can change from one local council to another.
Where there is no private use, there would be no benefit in kind and therefore no income tax liability. As the asset would be at your home you would need strong evidence that there was no more than incidental private use for the office in order to satisfy HMRC if they were challenge the stance.
Where there is a private use there would be a benefit in kind based on 20% of the original cost.
Capital Gains Tax on Sale of your home
If the office has been used solely for business use, some of the gain from the sale of the property would not be exempted form capital gains tax through principal private residence (PPR) relief and therefore would be chargeable to capital gains tax. Providing this element is not above your available CGT annual exemption (currently £12,300 per person) no tax would be due.
Where there has been an element of private use and therefore no element has been solely used for business use, the whole of the gain will be exempt from capital gains tax due to PPR.
Here to support you
If you are thinking of purchasing a garden office, please give our expert team a call on 0330 22 33 660 and we would be happy to help you decide how best to buy and structure your new garden office.