0800 140 4644
With the rise of home working (especially during and after COVID), many UK business owners, freelancers, and remote workers are eyeing up their garden as the perfect spot for a dedicated home office. But the big question is: Can you put your garden office through your business and claim it as a business expense? This is a question we get asked all the time.
The short answer? Yes… but there are important details to be aware of! In this blog, we’ll explore how you can make the most of your garden office, what you can claim, and the potential tax implications.
Is a Garden Office a Business Expense?
Yes, you can claim the cost of a garden office as a legitimate business expense, but there are strict rules from HMRC regarding what is allowable. The key factor here is whether your garden office is used solely for business purposes. If it is, you may be able to claim for some of the costs. But if you use the space for personal purposes too—such as a home gym, guest room, or hobby space—your claim will be restricted.
What Can You Claim?
When it comes to putting your garden office through your business, here’s a breakdown of what you can potentially claim:
1. Construction Costs
You cannot claim the full cost of constructing the garden office itself. HMRC views this as a capital expense rather than an allowable deduction against profits. However, you may be able to claim capital allowances on certain elements, like:
- Electrical wiring;
- Lighting;
- Office furniture; and/or
- Thermal insulation.
These items fall under ‘plant and machinery’ and may qualify for the Annual Investment Allowance (AIA), which could allow you to deduct the full cost up to the AIA limit in the year of purchase.
2. Utilities and Running Costs
Once your garden office is up and running, you can claim for a proportion of the utilities, such as:
- Heating and lighting bills (as long as these are exclusively for your office); and
- Internet and phone bills, provided these are for business use.
It’s important to keep detailed records of the office’s running costs and ensure that you can prove to HMRC that the expenses are exclusively for business purposes.
3. Office Equipment
Items like a desk, chair, computers, and printers that you need to run your business are fully claimable as business expenses. This can be a huge benefit when setting up your office, as high-quality equipment can be written off against your taxable profits.
What About Capital Gains Tax?
Here’s where it gets tricky. Claiming your garden office as a business asset could have capital gains tax (CGT) implications when you sell your home. Typically, when you sell your main residence, you benefit from Private Residence Relief (PRR), which exempts you from paying CGT on any increase in value.
However, if you’ve claimed part of your home—such as a garden office—as a business expense, this could reduce your PRR. In other words, you might have to pay CGT on part of the profit made when you sell your home, based on the percentage of the property used for business.
VAT Considerations
If your business is VAT-registered, you might be tempted to reclaim VAT on the construction and furnishing costs of the garden office. However, HMRC will be strict on this front, and any personal use of the office may limit your ability to reclaim VAT.
For VAT on materials and construction costs, reclaiming is allowed only for the portion used exclusively for business. If you’re using the garden office for personal reasons, VAT cannot be claimed in full.
You can reclaim VAT on office furniture and equipment used solely for your business.
Could You Rent the Space to Your Business?
One way to manage the expenses of a garden office is to rent the space to your business. If you’re a limited company director, you can set up a rental agreement between yourself and your company, charging the business for the use of the office. However, this needs to be done at market rate and should be formalised in a contract. Additionally, you’ll need to declare the rental income on your personal tax return, though you may offset this with expenses incurred in maintaining the office.
How We Can Help
Deciding whether to claim your garden office through your business involves a careful balancing act. Claiming construction costs and utilities can provide tax relief, but you must weigh this against potential capital gains tax and VAT complications.
This is a great example of where we can help individuals and businesses make the right decision, to minimise the tax they pay, whilst factoring in any consequences which might result (intended or unintended). For example, we can help you with:
- Calculating what costs you can claim for your garden office;
- Avoiding potential pitfalls like capital gains tax charges;
- Structuring your business to get the most out of your office space; and/or
- Advising on VAT and other tax considerations
If you’re thinking about setting up a garden office and want to know more about what’s possible, get in touch with us today. We’ll help you find the most tax-efficient way to make your garden office work for your business!
