Guide to Running a Business from Home
Introduction Anyone setting up and running a business from home will need to consider a range of practical and legal issues.
This factsheet describes the legal and practical aspects of running a business from home. It identifies key issues including tax, business rates, planning permission, trading licences, insurance and health and safety. It also highlights practical considerations relating to security, record keeping, IT and administration.
Legal issues Landlord and mortgage provider permission Anyone intending to trade from a home base should inform their mortgage company or landlord and check that they are permitted to do this under the terms of their mortgage or tenancy agreement.
Landlords may be unwilling to grant permission if, for example, there will be nuisance to neighbours caused by unreasonable noise or parking problems due to frequent deliveries to the property.
The Small Business, Enterprise and Employment Act 2015 amended the Landlord and Tenant Act 1954 to allow tenants to run a home-based business from a rented residential property under a specific 'home business tenancy' granted by their landlord, as long as it is the kind of business that someone could reasonably be expected to run from their home.
Planning permission and building regulations approval In most cases it is not necessary to seek planning permission or 'change of use' permission to run a business from home. However, if it is necessary to extend or adapt part of the home or substantially change its use, planning permission may be required, in which case an application should be made to the local authority planning department in the area where the property is located. Converting an outbuilding into an office or workshop or making a home primarily a place of business rather than a residential property, for example, need planning approval before any changes can be made. Building regulations approval may also be required if the property is to be adapted or extended. Building work, including alterations to property, is strictly regulated under a range of legislation, which varies across the UK.
Insurance Most domestic home and contents insurance policies do not include cover for business activities. For example, anyone running a business from home will need to insure their equipment or stock against theft or accidental damage. If it is intended to store business equipment or stock in a garage or shed, it will be necessary to check that this can be covered.
Insurance providers may require the home owner or occupier to take out specific business and contents cover, either as an extension to the existing home insurance policy or under a separate policy. Existing home contents insurance cover may also be invalidated and claims refused (even if the loss claimed is not connected to the business) if the insurance provider has not been informed that a business is being run from the property. Business rates If part of the home is set aside exclusively for business use, it may be necessary to pay business rates. The decision about how much is due is made on a case-by-case basis by local valuation offices or assessors depending on where in the UK the business is based.
If part of the home is liable for business rates, domestic council tax will be charged for the rest of the home. However, in some circumstances only council tax is applicable, such as when only a small part of a home is used for business purposes; when the home-based business does not employ anyone else to work from the property; and when goods are posted to customers, rather than collected in person. Homes used for providing bed and breakfast accommodation for six guests or fewer are not usually liable for business rates.
Trading licences
Certain types of business premises need to be either licensed or registered, usually by the local authority in the area where they are located and this includes many businesses run from home. For example:
Taxi and private hire licence. The driver, the vehicle and, in most cases, the business operator all need a licence from the licensing department of their local authority. When applying for a private hire licence it is necessary to designate an 'operating centre' where the vehicle will be kept and many self-employed private hire drivers use their home for this purpose.
Skin piercing licence. Anyone who offers skin piercing treatments, such as tattooing, ear and body piercing, electrolysis or acupuncture, must apply for a premises or practitioner licence from their local authority before starting to trade.
Massage and special treatment (MST) licence. Anyone who offers treatments such as massage, facials, manicures and waxing from their home may need to apply for a premises or practitioner licence from their local authority before starting to trade.
Animal boarding or home boarding licence. Anyone whose business activities involve providing accommodation for animals will need a licence from their local authority. Business activities that are often carried out at home and normally require a licence include pet sitting and boarding kennels.
Food business registration. All business premises (including home-based kitchens) where food and drink are produced, prepared, handled or stored must be registered with the environmental health department of the local authority in the area where they are located. An application for registration must be submitted at least 28 days before the business begins trading.
Tax allowances and liabilities Before starting up it is important to check how running a business from home will affect tax allowances. For example:
'Use-of-home' deductions are available to sole traders and partnerships that use their home for business purposes. The deductions allow expenses incurred when using a home for business purposes to be offset against taxable income.
Anyone planning to use their own vehicle for business purposes needs to keep detailed records so that they can separate their business from their private mileage and claim for business miles as a business expense.
If part of a home is used exclusively for business purposes, a Capital Gains Tax (CGT) liability may arise in future when the home is sold.
It is important to seek advice from HM Revenue & Customs (HMRC) and an accountant to determine the tax allowances and deductions that can be claimed, the amount of income tax payable, and any CGT liability that may arise.
Health and safety Anyone running a business from home may have legal obligations under health and safety legislation, depending on the type of business they run, their work activities, and whether or not they employ any staff.
In England, Wales and Scotland (Great Britain) under the Health and Safety at Work etc. Act 1974 (General Duties of Self-Employed Persons) (Prescribed Undertakings) Regulations 2015, self-employed people who run their business from home and do not have any employees, and whose work activities pose no potential risk of causing harm to other people (apart from themselves) are exempt from complying with health and safety law. There is no equivalent legislation in Northern Ireland that exempts any self-employed person from complying with health and safety law.
Under the Health and Safety at Work etc. Act 1974, and the Health and Safety at Work (Northern Ireland) Order 1978, anyone running a business from home who is not exempt from health and safety law has a duty of care to protect the health and safety of anyone affected by their business activities.
The Management of Health and Safety at Work Regulations 1999 also require employers to carry out a risk assessment of their workplace and work activities and to provide adequate health and safety training for employees. In Northern Ireland the Management of Health and Safety at Work Regulations (Northern Ireland) 2000 apply.
Other practical issues
As well as the various legal issues, there are a number of practical issues to consider when starting up and running a business from home. These include security, record keeping, IT and administrative support.
Security Before starting to trade from home, it is important to consider whether additional security, such as a burglar alarm or window locks, will be needed. Setting up a home-based business may raise the level of insurance premiums and insurers may require certain security measures to be in place before agreeing to provide cover.
If the business deals with high volumes of cash or cheques, adequate storage, such as a small safe will be required, and money should be paid in to the bank on a regular basis.
Record keeping Anyone running a business from home must keep records of all receipts and expenditure for tax purposes. The exact records kept depend on the type and size of the business, but they must be sufficient to enable the completion of a precise and accurate tax return. All sales and other business receipts and details of expenses incurred should be recorded and the records kept secure.
If the business is registered for VAT, records must be kept of all the supplies received and sales made and a summary of VAT for each period covered by the VAT return. These records must be kept for six years after the year they relate to.
If staff are employed, records must be kept for six years covering all wages, salary and National Insurance (NI) payments and deductions. Employers' liability insurance policy details must be available for staff to view, and a record of all insurance policies held should also be kept.
There are specific rules relating to record keeping depending on the type of business being set up from home, for example under food legislation records relating to supplies received, customer orders and food hygiene procedures must be kept.
The Data Protection Act 2018 and the General Data Protection Regulation (GDPR) place controls on the management and use of personally identifiable data relating to individuals. They stipulate that personal data must be used only for its clearly intended purpose and held securely.
For example, anyone running a business from home must ensure that paper records that include personally identifiable information about individuals are kept securely. They must also take measures to prevent laptops and USB memory sticks that contain personal data being lost or stolen.
IT and telephones
A dedicated business landline may be useful in addition to a high-speed broadband connection. There are many business broadband and landline packages available and the cost of installing and maintaining the line can be claimed as a business expense.
IT and cyber security is a crucial issue and it is important to ensure that firewall and antivirus software is in place to protect any business information, records and data that are stored on PCs, laptops and tablets. There are also various cloud-based data storage and software options that are useful for anyone running a business from home.
Administrative support If there is unlikely to be sufficient time to deal with day-to-day business administration but the cost of an employee cannot be justified, a freelance 'virtual office assistant' could be engaged to provide administrative support. Virtual assistants (VAs) can undertake a wide range of admin tasks and provide tailored services for anyone running a home-based business.
VA duties typically include telephone answering, bookkeeping, typing and filing, event or travel booking and data entry. Some VAs provide specialist services such as website updating and design, desktop publishing or marketing. They usually charge between £10 and £30 per hour, depending on the services required. Receiving mail Setting up a Post Office (PO) box number or commercial mail redirection service can be useful to restrict the amount of business mail received at the home address. Go to www.royalmail.com/receiving/po-box for further information about setting up a PO Box.
Contact Ashored for more information and support on Running a Business from Home.
