Garden offices and VAT

Garden office VAT

What Can I Reclaim?

Business owners and private residents wishing to build a garden office, garden room or extension often wonder about the possibility of reclaiming VAT.

Below accountant Giuseppe Colombi considers questions about garden office buildings and VAT.

A Garden office; can I reclaim the VAT?

Can I claim the VAT back on a garden office for my business?

The answer to the question can you reclaim the VAT on your garden office is very simple. Yes you can, provided you are registered for VAT.

There are no restrictions to the amount of VAT that you can reclaim and most businesses are familiar with the way input tax is treated in their accounts.

What is the situation if I am not registered for VAT?

If you are not VAT registered and you buy a garden office clearly you cannot reclaim, however there is good news.

If you do become registered, you can claim the VAT incurred in the previous four years counting back from the effective day of registration.

This rule applies to all assets and equipment and clearly as a business grows the VAT threshold may be exceeded at any time in the future.

Can I reclaim VAT if I borrow money for a garden office?

The purchase of an office building is a separate transaction from the loan agreement you may have with a lender to purchase the building.

Therefore, you can claim the VAT in full when you purchase the building even though you are spreading the cost over a number of years.

Sole-Traders, Limited Companies and VAT

Does it make any difference whether I am a sole trader or a limited company?

In terms of VAT, there are no substantial differences between a Sole-trader and a Limited Company. Both follow the same rules as outlined above.

Private Residential Clients and VAT

What are the VAT rules for buildings bought by private individuals rather than businesses?

For residential clients the most common question is, “are garden buildings zero rated?”

The short answer to this question is NO. Therefore VAT will be charged at 20%. The reason for this is based on the following HMRC rules –

Basic conditions for zero-rating construction of a new building:

  • A building must be ‘designed as a dwelling’
  • A building must be used solely for a ‘relevant residential purpose’
  • A building must be used solely for a ‘relevant charitable purpose’ (for non-business use)

A building is designed as a dwelling when the following rules apply:

  • The dwelling consists of self-contained living accommodation;
  • There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
  • The separate use of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision;
  • The separate disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision; and
  • Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

Which buildings are excluded from zero rated VAT?

As a result of the above rules the following buildings cannot be zero-rated:

  • A building used for commercial purposes such as a garden office.
  • A ‘granny’ annexe which cannot be used, or disposed of, separately from a main house.
  • A house which cannot be used, or disposed of, separately from a business premises.
  • A house that incorporates a part or parts of an earlier building on the site. For example, planning permission has been given to alter and extend an existing dwelling. That dwelling is substantially but not fully demolished in order to comply with the planning permission and a new dwelling constructed, incorporating the parts not demolished.

As all garden buildings are likely to be part of the main dwelling for planning permission purposes they are subject to the standard rate of VAT even if used for residential purposes.

Giuseppe Colombi

Garden office accountantGiuseppe Colombi is an accountant with over twenty five years experience and owner of Best Choice Accountancy Ltd. He has a friendly, practical style and removes the stress of accounts, tax and deadlines, helping you focus on building your business. He enjoys sharing his knowledge of business, accounting and tax with business owners like you, small companies, contractors and freelancers.