It is becoming more common for businesses to operate from home. With this comes the need for space and one solution is to build a separate office to provide the office space needed. I am often asked what the tax implications of doing this are.
Business Tax implications
Not all of the cost of a garden office will be claimable against your income.
This is because expenditure on buildings, structures and land do not qualify for capital allowances. Capital allowances are the way you would obtain tax relief.
Capital allowances are available on plant and machinery and tax legislation provides a comprehensive list of that satisfy this definition.
What you can claim for is the plant within the structure or building and this is where it is important to ensure that you have your invoice itemised correctly prior to the work being completed.
Items that are likely to be within the building and qualify as plant and machinery are:
This list is not exhaustive so if there is anything you are unsure of please seek further advice.
It is important to ensure that your invoice itemises all such items. It would be normal to get a draft invoice from a supplier and for a review to be undertaken prior to commencing with the project to ensure items of plant can be separately identified and their cost quantified.
A VAT registered business may claim VAT on the provision of the garden building. If there is any personal use of the building you would need to make an adjustment for the personal element. If you are operating the flat rate scheme then only VAT on the provision of the capital good and not the service will be claimable and only if the invoice totals £2k or more.
Any foundation work would not be claimable as that would be in relation to the building structure rather than claimable as plant and machinery.
Capital gains Tax
This is only a future issue on sale of your home if you are building a brick-type new build rather than a more ‘temporary structure’ more akin to a ‘posh’ shed. our advice would be to speak with your tax advisor prior to construction,
As the garden office will be separate from your home there is a risk that local councils may seek to charge business rates – advice would be to check with your council.
Planning permission is also an issue that is best to discuss with your local planning department before undertaking work.
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