- featured Image is the Garden Studio by Heart Pods
A garden office is the ideal solution for those running a business from home. Garden structures are separate from the main property and, therefore, provide a quieter, more professional space that allows you to effectively separate work from home life. While there are many advantages to be had with a garden office, it is important to consider the financial implications before installation. In this post, we will explore the business expenses and tax implications of running a business from a garden office.
Whether you are a sole trader or running a limited company, you need to consider whether you are using your garden office solely for business purposes or not. Generally speaking, you can claim the VAT back for the cost of the structure if you are VAT registered. However, if you use your garden office for personal use some of the time, you can only claim the relevant percentage of VAT.
Example: You use your garden office for business purposes Monday to Friday. On weekends, your family uses the space for purposes such as relaxing, entertainment, exercising etc. You would, therefore, be using the garden office for business purposes roughly 70% of the time and could, therefore, only claim 70% of the VAT.
Initial construction or installation
The cost of constructing or installing a garden office is not tax-deductible from your business profits. This applies also to any costs associated with the installation, such as delivery charges and initial decoration.
It does not matter whether you construct the garden office yourself or purchase a ready-made structure from a company. Even though a garden room is technically a moveable structure, it counts as premises from which you run your business and not an item of business equipment.
Equipment, furniture and fixings
The good news is that any items you purchase for the structure, such as furniture, storage, IT equipment etc., do count as business expenses and are, therefore, tax-deductible. This counts also for thermal insulation and electrical works. Although the initial decoration of your structure is not tax-deductible, you can deduct the expenses of redecoration when this becomes necessary. Ensure you receive itemised bills for any such work as you will need these to evidence your expenses.
When it comes to utilities, you may deduct the costs in full only if your garden office has a separate meter. Otherwise, you can deduct a percentage based on your use of the room for business purposes. One way of estimating this is by dividing the total cost of utilities by the number of rooms in your property, including the garden office. You would then pay the amount for the garden office only.
This counts for all utilities, including heating, electricity and water. Presumably, you would have a dedicated phone line for your business which would be entirely tax-deductible. However, if this is not the case, and you are using your personal landline or mobile for business purposes also, the percentage rule will apply.
Example: Your property has five rooms, including the garden office. You would then claim 20% of the cost of utilities as a business expense. Keep in mind, however, that this gets complicated if you are also using the space for personal use.
What if I use my garden office as a guest room?
If your garden office is in your company name and you use it as a one-off for a guest room, you do not need to worry. However, if there are people regularly sleeping in the room, then this would count as personal use and, therefore, affect your accounts in terms of tax and expenses.
If you are a sole trader, this is more relevant. You will need to demonstrate that your garden office is solely for business use in order to benefit from maximum tax deductions.
Do I need to pay capital gains tax if I sell my home?
If your garden office is a company asset, then technically, capital gains tax could be applicable if you sell your home. However, in reality, this is very unlikely to be an issue. This is because, although a garden room can increase the value of your property, its value in isolation will decrease over time. There is, therefore, no profit or gain to be had from it when selling your property. If there was any gain, it is likely to be exempt from capital gains tax.
Do I need to pay business rates on a garden office?
Business rates and associated reliefs vary between local authorities. It is, therefore, advisable that you check with your local authority to find out where you stand regarding business rates for your garden office.
It is possible that garden offices will attract business rates. However, there are reliefs available for small businesses as well as those located in designated economic areas and rural locations. Check with your local authority to see if you qualify.
Although there are some considerations to be made regarding the financial implications of running a business from a garden office, there are many advantages to be had. You will no longer need to commute to work which will save time and money. For those already working from home, it is much easier to separate home and work life when you have a separate building for work. It also presents a much more professional image to clients and business prospects.
If you are ready to take the plunge and invest in a shoffice, then you can start your search for a garden office here.