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Can running my business from a garden office have tax and business rate benefits

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Just over half of all the small businesses in the UK are run from home. According to data released by the Office for National Statistics (ONS), there are now 2.5 million home-based businesses in the UK in total, accounting for 8% of the entire country's workforce.

The benefits, of course, are obvious. There's no rent to pay for a premises, the lack of a commute puts less stress on the mind, body and wallet, and perhaps best of all, there's the opportunity to create a better work-life balance. However, if you run your home business from a garden office, there is the chance to enjoy a number of benefits related to tax and business rates too.

What type of garden office would qualify for tax benefits?

To qualify, your garden office would have to be deemed a moveable object, and not a permanent structure that would require planning permission. Although home-based workers are sometimes referred to as 'shedworkers' in the media, the types of prefabricated offices that are now available on the market are much more than just glorified sheds.There's plenty of information out there on whether you will need to seek planning permission when purchasing a garden office, like this planning permission guide.

Can I offset the cost of my garden building against corporation tax?

As long as your garden building is not subject to planning permission and is considered to be a movable object, you may be able to offset the cost of purchase against corporation tax. All equipment that is bought for use within a business qualifies as capital allowance. And if the equipment qualifies as capital allowance, it can be classified as capital expenditure, which can be deducted from a business's profits for the purposes of tax.

As a moveable object, in some instances, the taxman will deem an office building to be plant or machinery and therefore equipment that qualifies as capital allowance. However you will have to consult your taxman as every case is different and a number of variables such as the nature of your business will have to be taken into consideration.

The situation is a lot clearer cut when it comes to equipment that you will need to run your garden office building efficiently. Electrical wiring for lights, heaters and the powering of apparatus are all classified as equipment and therefore qualify as capital allowance. The installation of a water supply and the purchasing of traditional office furniture will qualify as equipment too.

Can I claim back VAT on my garden office purchase?

The short answer is yes. As long as your business is VAT registered, you will be able to reclaim the VAT from purchasing your garden office building in your business's quarterly VAT return.
Many small businesses, however, operate on a flat rate VAT scheme in order to help them reduce the amount of time spent on finance and accounting issues. Typically, under a flat rate scheme, you're limited to reclaiming VAT on capital goods that cost over £2000 (including VAT).

If your garden office, then, costs over £2000, you will be able to claim back VAT; unless you're purchasing your desk from Harrods, any office furniture you purchase is unlikely to fall within that bracket. Unlike corporation tax, you will not be able to claim back the price of VAT for the installation of electricity and water, as they are not classified as 'goods' for the purposes of VAT.

Are there any business rate and capital gains tax benefits?

In the past, when it comes to moving house, some homeworkers have been liable to pay capital gains tax where part of their abode had been used for commercial purposes. The way around this is to ensure that your home office retains some residential use. Again, a garden office can help to domestic and business life further. However, to avoid your garden office becoming liable for capital gains tax, it is advisable that you maintain part of its use for leisure, so that it is not used exclusively for business purposes.

Garden offices may need assessing by your local authority for business rate applicability. However, small businesses, businesses that are deemed to be in area of low economic activity and garden offices in particular, often qualify for substantial business rate reliefs.

What to do next

Although advice on the above tax benefits have been shared in good faith, please be aware that these recommendations have been made based solely on research and experience. Every case is different and before you consider investing in a garden office for the potential tax benefits, you should always seek the advice of a trained accountant.

If you have found the advice on this page useful, please take the time to share it on your favoured social network. Alternatively if you have on the comments subject, fire away in the comments section below.

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