Can my business pay for my garden office?

When it comes to purchasing and expensing a garden office, you may be wondering if your company can cover the costs.

Whilst this is possible, there are the following caveats and issues to contend with that you should keep in mind.

Capital Allowance

If your business builds an office in a residential garden space owned by an employee or director it may not be eligible for capital allowances, such as the Structure & Building Allowance.

However, it might be possible to use capital allowances to reclaim some of the cost of installation for utilities, such as electrical wiring, plumbing or thermal insulations, via the Plant & Machinery Allowance.

Capital Gains Tax

If the garden office is fixed down, then it forms part of your property. This may create Capital Gains Tax issues when you come to sell your home as it may affect how your property is classed.

If the garden office is not fixed down, then you could argue that if you were to move, you could take it with you, so the office does not form part of the premises. As such, you would be fine reclaiming the cost of the office from the limited company.

Personal vs business use

If you intend to use your garden office for work and personal use, this may constitute a taxable benefit in kind and you would need to declare this on your personal tax return.

As you will have a separate building for the business then there is the risk that the council could assess the building for business rates – you may wish to check this with your local authority.

The building will need checking against terms of the home insurance and mortgage to ensure no breaches, costs must be addressed to the company, and if you close the company, you may have to purchase it back, where tax and VAT will need consideration.

If not sold to you, the value of the office would be ‘distributed’ to you and subject to tax.

Should you wish to buy it personally, assuming you are a higher rate taxpayer, to pay for a £20,000 office, you would need to take at least £30,000 out of the company (as a dividend taxed at 33.75 per cent), assuming you don’t personally have the cash available.

Basic rate dividends are taxed at 8.75 per cent (for earnings up to £50,000).

When dealing with issues such as the above, it’s imperative to seek advice from professionals. Contact us today to find out more.