Submitted by Sestini & Co
| on Fri, 02/05/2021 - 10:20 | In Corporation Tax
, Running a company
There are many pros and cons of working from home but the lack of space, both mental and physical, can often be an issue.
Garden office pods aren’t a new thing but, as a result of the current pandemic, have become an increasingly popular option.
Research by Direct Line’s Home Insurance arm demonstrates that nearly two fifths (39 per cent) of workers, some 7.3 million people, have already converted an existing space in their homes into an office during lockdown, with a similar number planning to make these changes in the next 12 months (38 per cent).
The insurance specialist’s research also shows that a dedicated home office can increase the value of your property by £17,500.
But what are the tax and legal implications of having a home office?
There are a wide range of garden office pods available with a wide variety of materials and pricing options to suit most budgets. Whether you’re a sole trader or a director of a limited company, there are also development regulations to consider.
Garden pods are classified as class E outbuildings and any use “must be incidental to the enjoyment of the dwelling house”.
If you’re using the pod purely for business, you’ll probably need formal planning permission. It’s best to check this with your local council before you set out to build one as it can be costly to have to remove it if it’s subsequently found not to comply with guidelines.
You will also need to find out about business rates as any changes to your home for the purposes of your business can incur these. You may be able to reduce the costs with small business rates relief. This is applicable if the business only uses one property and the rateable value of that property is less than £15,000.
If you’re using the pod for both business and personal use, it may be a good idea to consider funding the installation costs yourself rather than via the business. Although this may initially be costly, it will simplify things in the long run.
If you fund the build of the pod yourself you won’t be eligible for tax relief but should be able to recover business-related running costs from the business. This can be done in one of two ways; charging a rent or making an expense claim.
If you’re not operating as a sole trader, you could charge rent to the business. The costs of running the pod, such as heating and lighting, can be offset against the rental income.
Alternatively, you could recharge for the business-related running costs of the pod only. For an unincorporated business, any expenses charged would have to be “wholly and exclusively” for the benefit of the trade. For an incorporated business, the costs can be recharged provided the director performs some or all of their duties from home.
The business can also pay for any furnishings or equipment needed to carry out the work and claim capital allowances on the cost. This applies as long as private use is “insignificant”. This element is important in order to avoid either apportionment issues for the unincorporated business, or the risk of benefit in kind costs for the company director.
The use of a garden pod for business purposes is quite a complex area so if you need advice about the tax implications to your business and would like to speak to us, give us a call on 01761 241 861 or email us today.
We will be pleased to arrange an online consultation or telephone call.