The Tax implications of building a garden office for the company and director employee

When constructing or purchasing a garden office through a limited business, directors must address many tax difficulties. This article will take you to the tax consequences for people who work from home and how establishing a garden office can affect your tax situation.

Implications of tax

When the company pays for the garden office, it will need to consider the impact of the following taxes and allowances-

• Corporation Tax Relief: The corporation can cover the entire cost if the garden office is used for business reasons. The actual building cost, however, is not eligible for a company tax deduction. The expense of running the office, including heating and lighting, is tax-deductible.
• Capital Allowances: Capital allowances are available for assets classified as Plant and Machinery (P&M). If the item purchased qualifies for Annual Investment Allowance (AIA), a business can claim 100 per cent of the asset’s cost in the first year, subject to an annual limit.

The good news is that fixtures and fittings do qualify for tax relief under capital allowances, allowing you to claim for items such as furniture, drapes, shelves, and so on. The expense of putting in power, including electrical wiring, light fixtures, and heating, is also eligible. Despite being part of the primary structure, thermal insulation qualifies as well.

VAT (Value-added tax): Reclaiming VAT can make a considerable difference in the cost of construction. VAT paid on the price of a building structure, furniture, or furnishings might be refunded if they are utilised only for business purposes. VAT cannot be reclaimed if you are a company director and use the lodging for personal reasons. However, if you use the accommodation for both business and personal purposes, you can only reclaim the business component of VAT, and you must allocate it fairly and reasonably. However, if you employ the VAT flat rate system, you should consult with a tax specialist.

Benefit-in-kind (BIK) is payable when a company/employer pays for the director’s or employee’s expenses. For example – The company paying for employees’ loft or charges of the garage. If a company paid for a garden office and used it privately for other means or by other family members, this will attract a benefit in kind charge.

Other Concerns

You must also consider other elements that may impact your decision to establish a garden office.

Insurance – Adding a garden office to your property may affect your home insurance. As a consequences, it is suggested that you call your insurance carrier and inform them of your plans before carrying them out.

Planning approval -If you want to conduct a business from your house, you may need planning clearance. Depending on the kinds and type of business, you may need to apply for a licence. As a result, contacting the local authority for advice is a necessary step before proceeding.

Mortgage -Creating a garden office and using a portion of your house for commercial purposes may have an impact on your mortgage.

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