If there is one question I have been asked by our business clients more than any other since the pandemic began, it is “How can I tax efficiently purchase a garden home office pod, to run my business from”?
Unfortunately there is no simple single answer to this question, and best advice will depend upon various personal circumstances. Care should be taken, and advice sought in advance, as there are a few nasty tax traps for the unwary. However, for a typical working-from-home business owner in this situation (who operates through a company, which is VAT registered and who will use the pod for 95% business, 5% private), a solution which optimises the overall business/personal tax position would be structured:
- Your company to pay 95% of the cost to purchase and install the pod (No corporation tax deduction can be claimed on these costs but the VAT can be reclaimed).
- Your company to pay 95% of the cost of the related furniture, fixtures and thermal insulation (on which capital allowances can be claimed against corporation tax by the company and the VAT reclaimed).
- You personally to charge the company 95% of the annual running costs, such as electric and water (also on which the company can claim a tax deduction).
- When you sell the house, an element of the price will need apportioning to the pod, of which 95% will be receivable, as a capital sale, by the company (on which there will be VAT).
The above balanced structure avoids unexpected benefit in kind or capital gains tax problems and retains exemption from business rates. It also enables the main initial capital outlay, which can easily total £10k+, to come from funds pre income tax, so overall tax leakage is minimised.