Garden offices have grown in popularity since people started working from home in 2020. Many people have even chosen to relocate from cities to cheaper accommodation where they can enjoy a quieter life and simply build an office into their garden. If this is an option for you, you are probably considering the pros and cons and wondering if you can claim expenses – after all, it is office space.
There are different ways to approach the question of expensing your garden office. If you are self employed or a sole trader, you might be wondering if you can use it for tax deductions. If you own a limited company, you might want to pay for your garden office from your expenses or know more about how it influences your capital. Or if you are employed, you might be wondering if your company can be billed for the use of the space. Whatever your situation, it is important to know the legalities and ramifications of how you pay for your garden office.
What is a garden office?
Unlike working from your garage, dining room table, or couch, a garden office is a viable professional alternative to a traditional office space. It is a stand alone structure on your property but not connected to your house. The benefit of using a garden office is that you can stay away from usual household distractions while still being close enough for emergencies and being able to avoid the daily commute.
Although some garden offices are simple converted sheds, more and more garden offices are being built specifically as office space and feature all normal office amenities. Most garden offices now come with plumbing, heating, and proper insulation.
Another advantage of a garden office, depending how you designate the space for your business, is that you could choose to use it for personal use as well. That means your office could convert into a guest room, art studio, playroom, or gym when you’re not working.
Garden offices are designed and built to your business needs and are usually a good investment for anyone looking to work from home on a more permanent basis. All you need is some space in your garden away from the house, and a bit of capital to fund the building costs.
Private or Commercial Space
The first thing to consider is whether your garden office is a private or commercial space. Deciding early on how you want your garden office to be viewed will help you figure out how to charge your business for it and will also help you in understanding its proper use.
A commercial property can be viewed as an asset held by the company. It has to be used solely for business use. Commercial properties are often also subject to different charges, including business rates for council tax, so be wary of these additional costs before you choose to create a commercial space.
Garden offices that are designated commercial spaces can be used as tax write-off. Although the building itself won’t qualify for any reductions in rates, the fixtures, fittings, connection of utilities like water, heating, and electricity, and any business equipment can all be used to offset taxes.
If you live in certain rural or designated economic areas, you may also qualify for business rates relief from charges like council tax. These will vary by local authority so you will need to contact your local council or authorities to find out if you can benefit from business rates relief.
Your other option is to keep your garden office as a private space. If you are wanting to use the garden office for guest accommodation, band practice on weekends, or as a reading nook away from the kids, you will need your garden office to be private rather than commercial.
If your space is private, then you may be able to charge your business rent for use of the space. Your own business can also write off tax on business equipment and necessities that you have bought specifically for business use.
Which option you choose to go with will depend on your business and your needs. The initial cost of building a garden office will put a lot of people off simply because the building itself cannot be expensed. But if you already have a space outside that you want to designate as a garden office, then making it a commercial space might be more beneficial. You will need to decide what you need from your garden office and how you are willing to charge for it.
Planning your garden office
There are a lot of other considerations you will need to factor in before you invest in building or remodeling for a garden office.
Planning permission might be necessary if you want to build a large structure. If you want a garden office that takes up a lot of space or is taller than a standard garden shed, you will need to apply for the proper planning permission, and this can eat into your budget. So if your office space needs to include space for manufacturing, construction, or other large work, then you might be better off renting a ready built commercial structure. Smaller, unobtrusive structures usually don’t require planning permission.
The second thing to consider is if you are VAT registered. There are different types of VAT registrations and if you are on the flat rate, you will only be able to claim back VAT if you have spent over £2, 000 on a single capital expenditure (in this case, the construction of your garden office). If you are not bound by the flat rate, then you can claim back on both the building of your garden office, as well as the fittings, fixtures, and other office equipment.
Like any other deduction, you will need to keep all records of payments and receipts for goods and services. Make sure you keep the goods receipts and services receipts separately as they are viewed differently in your deductions.
You will also need to think about capital gains tax. Capital gains tax doesn’t apply to residential buildings, but if your garden office is commercial and you decide to sell your property, you will probably need to pay capital gains tax on it. How much you pay will be calculated based on the size of the building as well as the type of building. Buildings that are deemed as temporary or more likely to depreciate more quickly will be charged less.
Of course, if you are planning to stay in your home for a long time, then you might not have to worry about capital gains tax. However, if you have any thoughts of moving in the near future, this is an important thing to consider before building your garden office.
Can a self-employed person claim expenses on a garden office?
If you are self-employed, getting your business to pay for your garden office probably won’t make much difference as you are responsible for all your finances. The building itself is not tax deductible. However, fittings and fixtures are. All business related items that are expensed through your business can be used to write off tax, saving you money.
Be aware that you cannot charge yourself rent on your garden office because legally you are the business. The only way you could charge rent is if you are renting your home from a landlord. In this case you can claim a small portion of your rent from your business based on how big your garden office is and the percentage of time you spend working in it.
Can a sole trader claim expenses on a garden office?
If you are VAT registered then you can claim back from the cost of your garden office. But as a sole trader you will only be able to claim back a percentage. You will need to calculate the percentage of time that your garden office is used as a work space to calculate how much VAT you can reclaim. If the workspace is dedicated to your business, however, then you may be able to claim back 100% of the VAT.
Can a limited company pay for a garden office?
Limited companies possibly have the best options when it comes to garden offices. Your garden office can be paid for by your limited company, but unlike other types of business, you will not be able to claim tax relief off it because the building is viewed as capital expenditure. Your business can pay for the design, planning, and building of your garden office, but none of the costs will be tax-deductible.
When it comes to fitting and furnishing your garden office, this all changes. You will be able to claim tax allowances on plumbing, heating, electrics, and insulation. Although insulation is part of the main structure of your building, it still qualifies for tax deductions through capital allowances. You can also claim back tax on all your office furniture, equipment, storage, and other fittings.
One important thing to remember is that if your limited company closes, you will need to purchase the garden office from your limited company. If you are VAT registered, this sale will also need to be reflected in the sale and in your company books.
Can an employee claim expenses on a garden office?
If you are employed but working from home from a garden office you will need to speak with your employer about what expenses they are willing to cover. Most employers won’t have considered home-working until a year ago and will still be reviewing work from home policies, so now may be a good time to subtly point out the mutual benefits of home working.
Ultimately, paying anything towards your garden office is at your employer’s discretion. If they are saving money because they no longer have to rent a commercial space then they may be willing to make a contribution. On the other hand, if you are the only employee not working from the office then your employer is unlikely to be willing to pay you any expenses since they have given you ample opportunity to work within their chosen office environment.
Another option some businesses have gone for is an interest-free payroll loan to help fund the cost of a garden office. Although this won’t cover your cost, it will help you to fund the building of a garden office without having to take out a high interest loan. You will need to discuss with your business how you repay this cost but usually the arrangement is that a portion of your salary is taken directly from payroll each month until the loan is repaid. HMRC allows loans like this for up to £5, 000 with no requirement for reporting, no tax, and no national insurance contributions.
What about utility bills?
If you own your business, then your utilities can be claimed back in proportion to what you use specifically for your business. This will include gas and electric, water, and broadband. You will need to calculate how much of these utilities are used for your business though. If your garden has a separate meter that runs to your garden office, you will be able to claim the entirety back if your garden office is used solely for business use.
Important considerations before building a garden office
If you own your business then it makes a lot of sense to claim back as much money as you can from your garden office. This might be in the form of tax deductions, VAT deductions, or capital allowances. But there are a lot of complex tax rules governing how this is done and how much can be claimed. There is no single solution for every business because it will depend on where you live, the type of business you run, how often you use your space, along with many other factors. If you are struggling to understand the rules governing garden office payments, then it would be prudent to hire a professional tax consultant to help you with the legalities and logistics of getting your business to pay for your garden office. Bear in mind that if you don’t abide by the rules you may end up losing far more money in taxes, fines, or legal fees than you might have saved by doing things properly to begin with.