Can I buy a garden office through my Limited Company?

Since the pandemic, working from home has become much easier and more acceptable and as such, home offices and specifically cosy garden offices have become an attractive option.

If you’ve been looking into these options for yourself and your own business, you may be wondering if a garden office can be purchased through your limited company and what the tax implications might be? This blog post explores these questions further for you.

Corporation tax allowances on construction of a garden office

Of course, as with many other things, there are multiple different tax implications to consider before putting any kind of cost through your limited company. The short answer to ‘can my limited company pay for my garden office’ is yes, but it is unlikely you will be able to claim tax relief on the office itself, since technically it would be classed as capital expenditure.

For capital expenditure, the ‘Structure and Building Allowance’ was introduced in 2018, and it provides businesses with a way to claim a 3% per year allowable expense on qualifying expenditure for the construction, renovation, conversion and repairs of buildings and structures. However, this allowance specifically prohibits claiming if the structure is built on residential property/land, so that rules this allowance out when it comes to a home garden office.

If you do decide to go ahead and purchase the build of a garden office through your limited company, be aware that, because this allowance is unavailable and it is not an allowable business expense in any other form, the cost of the office build will not help reduce your corporation tax bill. You may also wish to consider if business rates would apply, if you are treating this building as 100% exclusive business use. The cost would show on FAR as freehold.

What if my garden office isn’t exclusively for business use?

You may want to use your garden office for multiple purposes such as a gym, guest room, or art studio, in this case, if you have paid for it in full via the company then you are effectively gaining a taxable benefit by being permitted use of a business asset, you will be required to pay Income Tax and national insurance on the taxable benefit and report it on both your personal tax return and a form P11D.

What about other associated costs?

In terms of utility installations such as electrical wiring, plumbing or thermal insulations – these may be claimable under capital allowances and covered by the annual investment allowance, thus providing 19% Corporation tax allowance on the cost. To Claim this however it is important you get an itemised bill which splits out the cost of each component and its installation from the other costs which are not claimable.

Be aware that this allowance just won’t apply to anything that is not out rightly owned by the company, for example, the use and hire of any equipment cannot be claimed for. Other capital allowances that can be claimed include furniture such as a desk, office chair, shelving, floor lamp etc.

Reclaiming VAT on the cost of a garden office

It may still be beneficial for you to pay the cost of your garden and build through the company despite not being able to offset any costs against your corporation tax bill, if your limited company is VAT registered. For business expenditure, including the cost of the building/structure, VAT paid may be reclaimable on your VAT return.

If you use the VAT flat rate scheme, make sure:
• Your cost of materials and the cost of the construction are separate
• The materials are bought all together and charged as a single transaction that is at least £2,000
• Only capital assets for individual purchases at a minimum of £2,000 can be reclaimed under this scheme

Remember – VAT cannot be reclaimed where there will be any significant personal use of the garden office (gym, studio etc). If there will be any kind of personal usage, then you may only be able to claim back a portion of the VAT.

What if I sell my house?

Capital Gains Tax (CGT) should be considered if you plan to sell your home. If your garden office has not had exclusive business use, then CGT will apply, even where it has been purchased through your limited company.

Where your garden office was exclusively used for business only, then your entitlement to an exemption from CGT will be reduced and there may be an element of taxable gain on the sale. There are also other practicalities to consider if selling a home with partial commercial use, as this may well impact the buyer’s ability to find a mortgage.

Practically this exclusive business use is often difficult to substantiate (in the same way that HMRC will assume the garden office has had personal use and therefore attract a taxable benefit) which means CGT may not be an issue.

What if I close my Limited Company?

If/when you choose to perhaps close your limited company, and it owns the garden office which you will be keeping, you will need to purchase it from your company. It will need to be bought at the market value at that point (remember if your company is VAT registered to consider this for the sale too). It is often a good idea to have a restoration clause at the end of the contract.

Still have questions?

We can help you with any queries you may have, please don’t hesitate to get in contact with us at any time.