Before we get started with any tips or provide information on how a garden office may affect your business, we’d like to let you know that we are not accountants or financial specialists of any kind.
So, before you begin working on the design for your garden office, it’s always a good idea to consult your own financial expert(s) to see exactly how a garden office will effect your unique business. This article is specifically for informational purposes and is not meant to be seen or used as financial guidance or advice. OK, with that out of the way, we can get started!
Most Common Financial Questions on Using a Garden Office for Business
We work with a wide variety of customers, including those who would like to build a garden office. Some are running their own businesses, while others use their garden office as an asset for the company, which is put to commercial use. The garden office, in some cases, may also be used as an extension to an existing home. Each use is unique and will have distinctive financial implications for each business.
In this article we’ll review some of the most commonly asked questions we hear from our customers.
The Garden Office is Used as a Home Extension
If the garden office will be used as part of a home, then you’ll be responsible for paying for the office, in which case you’ll need to charge your business rent. If you make money from this transaction (as the homeowner), then you may be subject to income tax on the rent earned.
On the other hand, if the rent is at cost, based on the business’s share of the domestic costs, then you will not be viewed as earning a profit. The cost can even include interest on a loan that was used to pay for the garden office.
The Garden Office is Owned by Your Business
In this case, it’s possible your company may be able to reclaim VAT on the cost of the office, its installation, and fittings if your business is VAT registered. This can mean huge savings for the company. However, be sure to check for other criteria such as if the office can be moved. In addition, small business VAT programs put a minimum value on anything that can be reclaimed. So, it’s important to check if the VAT-reclaim program can work for you. Keep in mind that VAT paid for smaller furnishings and fixtures may not qualify.
Because a garden office is not classified as a place of productive or industrial function, it’s not possible the company will be able to offset the cost of the office as a capital allowance to avoid paying corporation tax. Garden offices are classed as a location where “productive and industrial” functions are conducted.
Business Rates & CGT
In some cases, you may have to pay business rates on a garden office built to accommodate your business. However, if it’s a small business, is located in rural or designated economic area, then it may qualify for business rate reliefs. Because these reliefs vary, it’s a good idea to seek out the advice of your local authority on how this could affect your business and personal finances.
What is the garden office is used only for business use? In this case, you may have to deal with a capital gains tax liability, which would be the value of the garden office if you sell your home.
There are many variables in this scenario, which makes it imperative to talk this over with your own financial experts. While this can be a great way to enjoy the benefits of a garden office for your home-based business, you will also need to consider if running the business will cause more traffic and other changes to the neighbourhood. If so, then you will probably have to seek planning permission for the commercial use of the garden office.
An Office with Home-Based Employees
Many companies are choosing to develop garden offices as a way to help employees who work far from the head office. The employees may be based in garden office full or part-time, depending on their and the company’s needs. In this case, the company pays rent for the home office whether or not it’s located in a home or in a garden office. This type of setup can have implications on personal income tax, which will need to be reviewed to ensure at cost rates are sensible.
Another option some companies have taken is to provide their employees with an interest free payroll loan to pay for the cost of a garden office. In this situation, it works much like a season ticket loan. Deductions are taken from the employee’s payroll to repay the cost of the loan. According to HMRC, there would be no tax, NIC or reporting requirements on what is termed a “beneficial loan” up to the value of £5,000 per tax year.
Consult a Financial Expert
As you can see, adding a garden office for your business is not exactly straightforward when it comes to your personal and business finances. This is why seeking out the advice of your financial expert before you begin a garden office project.
This is especially the case since rules, business rates, commercial planning and more varies by location and can change at any time.
We can’t stress this enough—the topics covered in this article are for informational purposes only. This article has been created to only provide an overview on the implications of adding a garden office to your home and business.
Before heading over to order that new garden office, be sure to fully explore the idea with the help of your business financial expert(s). Once you have all the pertinent facts, then you’ll be ready to start building that beautiful new garden office you’ve been dreaming about.
Having a garden office is a wonderful way to bring balance to your home and work life. You’ll have a separate place to work, with fewer distractions. And you’ll only be a few steps away from home—what a great commute! To top it all off, you’ll have a beautiful new garden office in the garden, where you’ll have a wonderful, relaxing view every day as you work.