Claiming for garden office building

[Deleted User]

Hello,

I'm self employed and work from home. I'm going to build a garden office that will be solely used for my work. The building will be built on a concrete base. Are there any issues with me claiming the entire cost of the building as a business expense?

Thanks
Dave

Pennywise

dave8989 wrote: »

Hello,

I'm self employed and work from home. I'm going to build a garden office that will be solely used for my work. The building will be built on a concrete base. Are there any issues with me claiming the entire cost of the building as a business expense?

Thanks
Dave

There's no tax relief on buildings. You can claim capital allowances on the fixtures & fitting though.

TheCyclingProgrammer

I've been back and forth with my accountant over this exact same thing. I'd almost decided to buy through the business but may have had a last minute change of heart.

Slightly different for me as I operate a Ltd company. As Pennywise says there is no capital allowances on the building costs itself though there may be for some integral features and fixtures and fittings. Main saving for me is the VAT if I put it through the business.

The problem with my company owning a building on land I own personally is the risk of HMRC taxing it as a BIK. It's very hard to prove there is no personal use of it and any uplift in value could also be considered a benefit in kind.

As you're self employed I don't think you need to worry about the BIK issue. But there are other potential complications:

* It still needs to meet the wholly and exclusively rule. Can you convince HMRC that the building has no significant personal use?

* If you're putting it through the books because it's for business use only then there's a risk it could be assessed for business rates. Probably a low risk and something you ought to check with your local VOA office. It's possible that even if it was assessed it's rateable value is so low that there are no rates chargeable.

* If you own your property then by having a dedicated room for your business you may have to restrict your PRR when you sell your house and be liable to CGT on a percentage of any gain you make. Depending on the value of your house and when and how much you may sell it for this might not be an issue, especially if the office occupies a small proportion of your property. It's likely any gain would fall within your CGT allowance.

Finally, if you're running a business out of the office you should speak to your local planning department to see if you will need planning permission. Even if the office meets the size and placement criteria for permitted development the planning department may not consider its use incidental and want you to apply for planning permission.

In summary, you possibly could but if you're not VAT registered then there's very little to gain in putting it through the books. You could pay for the building personally and still put some of the costs in furnishing that office through the business as these should pass the wholly and exclusively test and these should all be valid expenses or capital assets on which you could claim capital allowances.

For me personally the BIK issue is the big risk and I have to weigh that up vs the VAT saving.

Also, if you are VAT registered and reclaimed the VAT you would need to account for VAT on the market value of the office when you sell your house.

martinsurrey

TheCyclingProgrammer wrote: »

Finally, if you're running a business out of the office you should speak to your local planning department to see if you will need planning permission. Even if the office meets the size and placement criteria for permitted development the planning department may not consider its use incidental and want you to apply for planning permission.

In summary, you possibly could but if you're not VAT registered then there's very little to gain in putting it through the books. You could pay for the building personally and still put some of the costs in furnishing that office through the business as these should pass the wholly and exclusively test and these should all be valid expenses or capital assets on which you could claim capital allowances.

For me its the interaction of a few of your points that seals it.

To get around planning you have to prove that the business activity is ancillary to your use of the house as a home.

To get around the VAT/BIK issue, you have to prove that the building is 100% wholly and exclusively for the business.

It would be a hard job getting an argument for both at once.

TheCyclingProgrammer

FWIW I don't think planning is a major consideration, apart from the application fees. I think if you're just running it as an office with no visitors or employees you're very unlikely to have an issue getting planning and if you speak to your local planning office they might be happy with it being under permitted development (though it would be best to get a certificate of lawful development IMO).

The BIK issue, AFAIK, doesn't apply to OP as they are self-employed.

If VAT registered, it might be beneficial to allow for personal use and partially restrict your VAT claim. Having some partial personal use of the office should still allow you to reclaim a large proportion of the VAT if its mostly for business, capital allowances on all business related fixtures, fittings and other equipment and the element of personal use should also eliminate the PRR issue when you sell your house and the risk of being assessed for business rates.

To be honest, if I was self-employed I would do it that way (with the restricted VAT reclaim). Unfortunately if you operate through a Ltd company I think there might be too many potential complications of having a company-owned asset sitting on your land to make it worthwhile.