Pre-Covid, the concept of not having to travel to the office five days a week was very much a foreign one. But fast-forward five years and, for many of us, the opposite is happily true! For those of us who don’t live in a noise-free, clutter-free, zen-like space, everyday life isn’t always conducive to focused work. Finding a productive space in your living room, kitchen, or bedroom can be tricky.
A practical solution to busy households can be to create your very own peaceful, distraction-free space right in your garden. Sounds great, right? That is, until you start looking into prices and realise how much these buildings can cost, whether you buy one ready-made or build it yourself from scratch.
This leads lots of business owners to wonder “Can my limited company pay for my garden office?” The quick answer is yes, it can! But the bigger question is “Is it actually a good idea?” To figure this out, we need to look at the potential tax benefits versus the common financial downsides.
Let’s talk tax
When it comes to your company buying a garden office, there are a few tax areas to consider:
Corporation Tax
For the most part, a garden office is seen as a physical building, like a house extension. This means it’s generally treated as a ‘capital asset’ – something the company owns for the long term. However, it’s very rare for your company to get tax relief on the initial purchase cost itself, or on its value over time, as typically such costs do not qualify for any capital allowances.
Think of it this way: while some business purchases do qualify for tax relief to reduce your company’s profits, a garden office typically doesn’t. So, unfortunately, there’s usually no Corporation Tax saving here for the building itself. You might get relief on things inside the office, like desks or computers, but not the structure.
VAT vs business rates
This is where things can get a bit complicated, as you often face a ‘catch-22’ situation.
If you decide that the garden office is 100% for business use by your company, you can usually claim back the VAT on the building’s cost. Great, right? The flip side is that if it’s purely a commercial building, it might then be subject to business rates, which are local taxes that can add to your ongoing costs.
On the other hand, if you state that it has a mixed purpose – for example, if it’s your business office and you use it as a home gym or hobby space – then the VAT that you can reclaim will be reduced based on the percentage of your business usage. So, no full VAT reclaim here. Plus, if your company pays for something which you also use personally, this could be seen as a ‘Benefit in Kind’ (BIK), meaning you might have to pay personal tax on that benefit. However, the good news is that by declaring mixed purpose, it’s less likely to be hit with business rates.
Selling your home (Capital Gains Tax)
This is another important point related to the tax discussion. If your company owns the garden office and it’s used solely for business, that building is technically a company asset. When you sell your main home, you usually don’t pay Capital Gains Tax (CGT) on the sale, with the aid of Principal Private Residence Relief. However, if part of your property (like the garden office) were to be used exclusively for business by your company, that part could be subject to CGT when you sell your home.
What’s more, having the outbuilding owned (or even partly owned) by your limited company can add extra legal complexities when you come to sell your house. It means lawyers might need to unravel who owns what, which can lead to delays and additional legal bills.
Our view
While it might seem like a brilliant idea to have your company pay for that new garden office, especially saving on that initial outlay compared to using your personal, after-tax money, our general advice is to keep things simple. We usually recommend paying for your garden office personally, perhaps by taking out extra dividends from your company to cover the cost. This helps avoid future headaches and, in the long run, often leaves you no worse off financially.
Important points to remember:
- This advice is generally for limited companies.
- We’ve focused on the tax aspects here, but remember there are other practical things to consider like planning permission, making sure your insurance covers the new structure, and how it might affect your mortgage or any future house sale.
- Even though we often advise paying personally, sometimes, depending on your unique situation, having the company pay can still be viable.
- If you’re looking for more general advice on remote working, we also have a helpful guide on expenses you can claim working from home that you might find useful.
- And if you do decide to go ahead with a dedicated workspace at home, a garden office is generally a more straightforward option than trying to create a formal office space inside your main house, especially from a tax and legal perspective.
Got questions about your situation?
Every business and personal situation is unique. If you’ve read this and feel a company-funded garden office might still be right for you, or if you just have questions, please don’t hesitate to get in touch. We’re here to help you navigate the details.
