Since the start of the pandemic, many people have now switched to running their businesses from home.

Depending on the amount and type of work, many will utilise a spare room like a bedroom, or even create a garden office.

It may be that a more permanent structure could be added to the house, but that proportion of the structure could be subject to Capital Gains Tax when the property is sold.

There are various provisions you can apply for when working from home, like claiming for the equipment such as computer and associated equipment like printer, ink, paper etc.

It may also apply to home telephone lines and internet access, but only in circumstances where there is a clear business case for this.

You may be able to claim a proportion of your costs for things like:

• Heating
• Electricity
• Council Tax
• Mortgage interest or rent

You’ll need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.

Two further conditions need to be met for exemptions to apply:

1. The provision must not be used significantly for private purposes
2. The provision must be provided solely for the person to be able to carry out their duties and must not belong to one of the following excluded categories:

• Vehicles, boats and aircraft
• Any construction, extension or alteration of the employee’s living accommodation, such as the installation of a loft conversion office space or a garden office.

Building may be eligible for tax relief

If your business builds an office in a residential garden space owned by an employee or director it may not be eligible for capital allowances, such as the Structure & Building Allowance.

However, it might be possible to reclaim some of the cost of installation for utilities, such as electrical wiring, plumbing or thermal insulations, via the Plant & Machinery Allowance.

Liability for Capital Gains Tax

If the garden office is fixed down, then it forms part of your property. This may create Capital Gains liability when you come to sell the home.

If you intend to use your garden office for work and personal use, this may constitute a taxable benefit in kind and you would need to declare this on your personal tax return.

There is the possibility that the local council could assess the building for business.

When dealing with issues such as the above, it’s imperative to seek advice from professionals.

For help and advice on this complex issue, contact our team today.