Can I claim a garden office as an allowable business expense?

As remote working becomes increasingly popular in the UK, many professionals are considering adding a garden office to their homes. After the initial question of what colour should we paint it comes the next question…can the costs associated with a garden office be claimed as a business expense? 

 I will try to answer this clearly, but please forgive me if I go a little deep!  The answer involves various tax implications and considerations.

1. Capital Expenditure vs. Revenue Expenses

The construction of a garden office is typically classified as capital expenditure. This means that while your business can pay for your garden office's design, planning, and building, these costs are not tax-deductible and won’t reduce your corporation tax bill. 

2. Structures and Buildings Allowance (SBA)

Introduced in October 2018, the Structures and Buildings Allowance allows businesses to claim 3% on qualifying expenditures for the construction, renovation, conversion, and repairs of buildings and structures. However, this allowance excludes residential properties and structures within the boundary of a residential property, such as a garden office. 

3. Plant and Machinery Allowance

While the main structure of the garden office doesn’t qualify for immediate tax relief, certain elements within it do. Costs associated with installing utilities like electrical wiring, plumbing, and thermal insulation can be claimed as capital allowances. Additionally, office furniture and equipment, such as desks, chairs, and shelving, are eligible for tax relief under the Plant and Machinery Allowance. 

4. Value Added Tax (VAT) Considerations

If your business is VAT-registered, you may reclaim VAT on the construction and furnishing of the garden office. However, suppose the office is used for both business and personal purposes. In that case, you can only reclaim the portion of VAT corresponding to business use. For those on the VAT Flat Rate Scheme, reclaiming VAT is permissible on capital expenditure over £2,000, provided the purchase is a single transaction and pertains to goods, not services. 

5. Benefit-in-Kind (BIK) Implications

There are no benefit-in-Kind tax implications if the garden office is used exclusively for business. However, any personal use may classify the office as a benefit, leading to potential income tax and National Insurance liabilities. It’s essential to maintain clear records demonstrating exclusive business use to avoid these charges. 

6. Business Rates and Planning Permission

Depending on the nature and use of your garden office, it may be subject to business rates. It’s advisable to consult your local council to determine any liabilities. Additionally, while many garden offices fall under permitted development rights, checking with your local planning authority is prudent to ensure compliance with planning regulations. 

7. Capital Gains Tax (CGT) Considerations

Using a garden office exclusively for business can have Capital Gains Tax implications when selling your property. The portion of your property used for business may not qualify for Private Residence Relief, potentially leading to a CGT liability. To mitigate this, some opt for occasional personal use of the garden office, ensuring it remains part of the main residence for tax purposes. 

Conclusion

While certain costs associated with a garden office can be claimed as business expenses, the primary construction costs do not offer immediate tax relief. It’s crucial to consider the tax implications, including VAT, Benefit-in-Kind, business rates, and potential Capital Gains Tax. Consulting with a tax professional or accountant is recommended to navigate these complexities and make informed decisions tailored to your circumstances.