Navigating the Tax Implications of a Garden Office for Your Limited Company
If you own a limited company and are considering adding a garden office to your property, it’s essential to understand the tax implications of a garden office before making a decision.
There are several questions to consider, such as whether you can charge rent from your business to yourself personally, how a garden office is classified as a business asset, and what happens when you sell your house.
In this blog post, we will provide you with the guidance you need to navigate the tax implications of a garden office for your limited company.
Understanding the Benefits of a Garden Office for Your Limited Company
Adding a garden office to your limited company can provide many practical and financial benefits. Not only does it create a dedicated workspace away from the distractions of your home, but it can also have favourable tax implications.
Understanding the tax regulations associated with a garden office can reduce your tax liabilities and maximise your savings. This section will explore the numerous benefits a garden office can offer for your limited company and how it can align with the tax regulations to optimise your financial situation.
Is Renting the Garden Office to Yourself Personally a Viable Option?
Regarding the tax implications of having a garden office for your limited company, one question that often arises is whether you can rent the office to yourself personally. While it may seem like a simple and convenient solution, specific tax regulations need to be considered.
According to HMRC regulations, if you rent the garden office personally, you must ensure that the rent you charge is at a fair market rate. This means the rent should align with what you would charge if you rented the space to someone else.
Additionally, you must demonstrate that the garden office is being used exclusively for business purposes. This means you should refrain from using the space for personal use, such as storing personal belongings or allowing family members to use it for non-business activities.
You may also need to consider the implications of a business rental on your mortgage and house insurance as it is likely that these have been set up as a domestic agreement rather than commercial.
While renting the garden office to yourself personally may seem attractive, it’s essential to carefully consider the tax regulations, as this will be classed as additional personal income on your self-assessment tax return.
Classifying the Garden Office as a Business Asset: What You Need to Know
Certain factors must be considered when classifying a garden office as a business asset. Remember construction costs, DIY, or purchase price of a ready-made structure is not deductible from your business profits as this is classed as capital expenditure. Running costs, however, are tax deductible.
A garden office would be classified as an asset under the Structures and Building header. Unfortunately, these assets do not qualify for capital allowances because they are deemed a place of work where business is carried out. Garden office costs cannot be claimed under the newly announced Structures & Buildings Allowance (SBA). This is due to the costs of being on a residential property. HMRC will ultimately argue that there is a portion of personal use.
The good news is that fixtures and fittings, including electrical work, heat & light installations can be claimed under capital allowances, and full tax relief is generally available in the first year.
Reclaim VAT on my garden office.
If you’re a small business owner considering a garden office for your limited company, you may wonder if you can reclaim VAT on the construction or purchase of the office.
The good news is, in many cases, you can! You can claim the VAT back if the garden office is used exclusively for business purposes. This can help you reduce costs and increase your tax savings. However, consulting with a tax specialist or accountant is essential to ensure you meet all the requirements and understand the specific regulations for reclaiming VAT on your garden office.
Can utility bills be a business expense?
Yes, utility bills can be a business expense for your garden office if you use your garden office exclusively for business purposes. You can claim a portion of your utility bills as a business expense. This can include electricity, heating, internet, and other necessary utilities. Claiming these expenses can reduce your overall tax liability and maximise your tax savings. However, keeping detailed records and consulting an accountant is essential to ensure you meet all the requirements and guidelines HMRC sets.
Business Rates & BIK
Your garden office may also be liable for business rates. This is determined by the valuation office and payable regardless of the fact the structure is on residential land.
Also consider the impact of Benefit in Kind charges. These are payable by an individual if they receive a ‘benefit’ from their employer. This may be the case where the company has paid for a director’s loft conversion or extension and there is an element of personal use.
Tax Implications When Selling Your House with a Garden Office
Selling a house with a garden office can have tax implications that need to be considered.
When you sell your residential property, you are entitled to 100% private residence relief and therefore no gain is chargeable to capital gains tax.
However, the presence of a garden office may affect how this is calculated.
If the garden office is considered a business asset and qualifies for capital allowances, any gain attributable to the office will be subject to Capital Gains Tax. This is usually the case with fixed permanent structures. Moveable items may be excluded from this calculation.
Navigating HMRC Regulations and Requirements for Your Garden Office
Navigating HMRC regulations and requirements for your garden office can be complex, but ensuring compliance and minimising potential tax liabilities is essential.
However, consulting with an accountant can provide expert guidance tailored to your situation.
They can help you navigate the complexities of HMRC regulations, ensure compliance, and minimise potential tax liabilities. So, before making any decisions, seek professional advice to ensure your unique situation is covered. I hope you found this valuable information as you research the viability of a garden office for your limited company.
If this is something you are considering, give us a call and chat with our team to discuss your specific requirements to see whether a garden office is a viable option for you and your limited company.
