A new tax year means new UK income tax rates, allowances and limits. It’s also an excellent time for business owners to evaluate their business’ progress or to start saving for a rainy day. Within this blog we explain the latest changes and what's new in 2021.
The garden office- the latest must have?
“Work from home if you can” is the latest Government guidance. Sure we can “work” from home. “Work” from home with children and small furry animals running around, the box room office suddenly feeling more like a prison cell and the kitchen too close for comfort- is home really the best place to be creative and spread entrepreneurial spirit?
So what is the solution? go back to the old ways of working? or look for more interesting ways to use your wasted space…. we have a garden and it’s not just for the trampoline!!!!
The garden office is fast becoming the latest must have for many entrepreneurs…Its only a matter of time before we have the pop up iOffice flown in by a drone. 😊 In the meantime if you are considering investing in more outside space for your business here are a few areas to consider in the very grey overlapping tax landscape of the Garden office.
First up are the building costs and corporation tax
Most certainly the largest proportion of the cost you will incur when designing and building the garden office will be the actual bricks and mortar or more likely wood, nails, and energy efficient heating systems. Although this spend can be paid for by your company (make sure the invoices are addressed to the company), as it’s a building your company will not save much if any corporation tax on due to the complex and ever changing rules for capital allowances.
All is not lost though. there will be some very specific costs that your company will be able to get some tax relief on – usually in full, and in the year of purchase. The annual investment allowance is a type of capital allowance that may include:
- office and computer equipment
- electrical systems
- air conditioning
- heating and water systems
Especially look out for green energy saving solutions when kitting out your businesses new space.
Second up the VAT reclaim
This is where you need to need to tread carefully.If your company is VAT registered you will be able to claim back the VAT on all your costs (again make sure the invoices are made out to your company). That sounds simple enough until you consider personal use. Surely there will some!! The office is in your gardenisn’t it? If you will be using the garden office for both personal and business use, you will need to consider very seriously making an adjustment for the personal use element on your VAT reclaim.
Even more tricky is if you are on the VAT flat rate scheme – with the flat rate scheme you cannot claim back VAT on purchases unless you spend £2k or more on a single purchase of capital expenditure goods.For the flat rate scheme the cost of the garden office is likely to contain a mix of goods (the office building) and services (the installation), so ideally you will need to get separate invoices from the supplier to split out the goods from the services, and you can then claim back the VAT on the goods element, assuming the invoice totals £2k or more. It’s always a good idea with building works to obtain as detailed invoices as possible.
Third up income tax and the personal tax impact – Benefits in kind
Assuming you have personal use of the garden office for personal use this will be classified as a taxable benefit in kind (a bit like when your driving your Tesla to the shops, that is a whole other blog) unless your personal use is very minimal. It may prove difficult to show that there has been no or minimal personal use to HMRC so there is a risk of a benefits in kind tax charge even with no personal use.
Fourth up what about if you sell your property and capital gains tax
Who knows what the future will bring, you might be in your forever house today but as they say forever never comes. So, what happens if you sell your home? This is when capital gains tax pops up and consideration that any gain in value should be allocated to the home office becomes real. Well let’s just say there must be a strong argument in a few years’ time that the buildings value will have depreciating over time (rather than increasing) and will be of negligible value on the company’s balance sheet. What happens if forever is in 6 months’ time though….
If you are actually building a proper bricks and mortar new super structure that has just starred in Grand Designs, then we need to have a chat now not 2 days before completion
Fifth up Business rates
Now it’s time to speak to someone else other than your accountant – the council is the best and only place to start here. Given your garden office, ‘posh shed’ as we will now call, it is very separate from your home and is being used largely for business purposes there is a real risk that your local ‘skint’ council could opt to charge you business rates for running your business from the building – local councils do behave very differently so have a chat and get something in writing.
Sixth and finally Planning permission
Not one for your accountant, certainly one to be wary of though. Again, something else to speak to your local council about other than the bins.
Finally, a big caveat…this blog was written on 24th of September 2020. It is very likely that it is already out of date so tread carefully before you burst out of your box room into the big wide world of your garden.
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