Does a Garden Office Count as a Business Expense?

Does a Garden Office Count as a Business Expense?
Does a Garden Office Count as a Business Expense
This is the Garden Office of our Director Carrie

Working from home used to be a pipe dream for the average employee.

But with the ongoing pandemic, millions of people have been forced to make the long-term switch to working from home.

And that means more and more companies are taking a deeper look into how they can give their employees the space and equipment they need to do their best work.

We get asked all sorts of tax questions here at Spotlight Accounting – and we’re always happy to help out our clients with their everyday queries.

So we’ve put together this quick guide to help you understand what’s involved when you’re buying a garden office for one of your employees.

Ready to start? Let’s dig in…

Does a garden office come under the new Covid-19 tax rules?

With so many people working from home in the pandemic, the government has decided to relax some of the tax rules that deal with employees buying equipment for their home offices.

From now until the end of this tax year (2020/21), you can reimburse your employees for the home office equipment they need – and they won’t have to pay income tax on the money you give them.

But the key word here is ‘equipment’.

When we’re talking about tax, a garden office is a structure – not a piece of equipment.

And that means your employees will still need to pay income tax if your company pays for their garden office (as this would be classed as a business asset).

Will my employees have to pay tax on their garden office equipment?

Luckily, there’s a lot more to a garden office than just the structure itself.

You can reimburse your employees for the equipment they need to kit out their new garden office (without making your employees owe any income tax).

That usually means things like:

  • Computers and phones
  • Desks, chairs, and shelving units
  • And heaters and fans.

But there are two important conditions here, according to the new government rules:

  1. The equipment must be bought for the sole purpose of allowing the employee to work from home due to the pandemic.
  2. The equipment should normally have been exempt from taxation if your company had given it to your employee directly.

Will my employees have to pay a benefit-in-kind tax charge?

This is where things get a little tricky.

If your employee’s new garden office is used only for business purposes – and never sees any personal use – then it won’t count as a benefit in kind.

(And so they won’t need to pay any extra tax.)

But if their garden office sees any personal use at all, they could be liable for benefit-in-kind tax charge. Tax could be applied on 20% of full purchase price of the garden office.

So how would that work out in practice?

Let’s say you’ve bought a garden office for your employee that cost £5,000.

If there’s any personal use of the garden office, your employee would need to pay a benefit-in-kind tax on 20% of the full value of the office – which is £1,000 of taxable benefit.

If your employee is a 40% tax payer, that means they would need to pay 40% of that £1,000 – which means your employee would owe £400 in tax for their garden office.

And unfortunately, it can be difficult to prove that a garden office never sees any personal use!

What’s the most tax-efficient way to buy a garden office for an employee?

This is the exact question that we often get asked here at Spotlight Accounting.

Some employers are worried that if the company owns the garden office, they could be responsible for its maintenance – or even any health and safety obligations.

Some companies don’t want to be liable for a Class 1A National Insurance contribution if the office gets used for personal purposes.

And some companies simply don’t want to risk making their employees pay a benefit-in-kind tax.

So here’s what we usually recommend to our accounting clients:

  1. Ask your employee to buy the garden office – so that they own the office themselves. This can be done through an interest-free loan (and as long as the loan is under £5,000, there are no tax implications).
  2. You might choose to pay your employee an additional payment to cover the loan repayments – but these would be subject to tax and national insurance.
  3. Reimburse your employee directly for any office equipment they need to buy (under the new relaxed Covid-19 tax rules).

And the result?

You’ve effectively bought your employee a new garden office – with no company obligations, no benefits-in-kind tax, and no National Insurance contributions.

Hungry for more honest tax advice?

We’re constantly helping our clients with their everyday questions and queries – and we’re proud of our no-nonsense, jargon-free approach.

So if you’re looking for an accountant who can give you the direct answers you need (and can help you crunch the numbers along the way), give us a call or send us a message – we’ll be more than happy to chat about what you need.

Carrie Stokes Chartered Accountant

Carrie Stokes Chartered Accountant

I work with directors of limited companies in Shropshire, Staffordshire and the West Midlands giving them a clear and up to date financial picture of their business that they understand. Looking at the numbers, what they mean and how they can be improved to grow their business.

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