Corporation tax relief on purchase and running costs

• Structures & Buildings Allowance: This allowance specifically does not apply to any building in the curtilage of a residential property, so there is no corporation tax relief available for the initial cost of materials or construction of the garden office. Therefore, the cost of the office will not help reduce your company’s corporation tax bill.
  
• Plant and Machinery Allowance: Capital allowances are available for the cost of integral features, including the instillation for utilities such as electrical wiring, plumbing or thermal insulations, as well as plant and machinery, including furniture such as a desk, office chair, shelving, floor lamp etc. Therefore, the cost of fitting out the office will help reduce your company’s corporation tax bill.
  
• Business expenditure: The running costs, i.e. heating and electricity are all allowable business expenses. A fair calculation for the percentage of your home bills attributed to your home office should be used, and this should be well documented.

Personal use of the company owned garden office

• BIK: If there is any personal usage (e.g. storage or lounge area) then there will be a benefit in kind on you personally. The taxable value of the benefit in kind is calculated as the value of the office when first made available @ 20%, for each year it is available for use. This can therefore create a significant income tax charge for you and significant national insurance charge for the company.
  
• VAT: If there is significant personal usage, VAT charged on both the cost of the office itself and the cost of fitting out the office cannot be claimed. Even if there is a small amount of personal usage, this restricts the amount of VAT which can be claimed.
  
• Business rates: In the unlikely event that the local council assesses your garden office as a commercial building, business rates will be charged. If the rateable value if your garden shed is below £15k, then the company can claim small business rates relief to reduce this charge.

Further considerations if the garden office is deemed a permanent structure

• Deemed distribution: If the garden office is more of a permanent fixture (i.e. life expectancy of over, say, 30 years) then there is a concern that the company has spent money enhancing your property. If HMRC deems this to be the case, any increase in the value of your home as a result of the new garden office can be treated (and therefore taxed) as a dividend in specie.
  In order to avoid this, a formal lease or rental agreement at current market value can be put in place between the company and the owner(s) of the property, for the land on which the garden office is situated. The rental would be an allowable expense for the company and would be regarded as income for yourself and any other joint owner of the property. It is worth noting that the TAPAS legislation does not apply to this income, and it will therefore be fully taxable no matter how small.
  
• Capital gains tax charge upon sale of your property: Where a part of your property is designated as purely for business, HMRC can argue that you are not allowed to claim full Private Residents Relief (PRR) on part of your capital gain should you sell your home in the future. The part not eligible, should not be excessive, and could possibly be covered your capital gain annual exemptions.

Company tax relief for use of a garden office purchased personally

If there will be any personal usage, then it does not make sense to have the office purchased by the company and everything should therefore be purchased personally. In this case, there are still ways to claim some of the expenditure to reduce the company’s corporation tax:

• Flat rate use of home allowance (currently £6 per week), or
  
• Claim proportion of expenses (electricity, gas, broadband), or
  
• Have a formal lease or rental agreement at current market value put in place between the company and the owner(s) of the property, for the usage of the garden office as a whole.
  

As ever, we are here to support our clients through these challenging times, so if you would like to discuss any of the above in more detail then please get in touch with Stephanie Gover on 01268 983905 or via Stephanie.Gover@rickardluckin.co.uk
for more information.