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for anyone who works from home complete guide to legal requirements for home-based businesses starting a business? working from home? did you know? running a home business? ❚❚ Using part of your home for work could make you liable for business rates all you need to know to ensure you are ❚❚ Health and Safety laws apply to anyone who works from home ❚❚ Most buildings and contents insurance policies do not working legally cover home businesses ❚❚ Anyone who works from home needs to inform their landlord or mortgage lender ❚❚ The Local Council Planning Department needs to give approval Available Free of Charge for Home Business Network members from www.homebusinessnetwork.co.uk business rates Using❚part❚of❚your❚home❚for❚ A study of 100sq ft, for example, work❚could❚make❚you❚liable❚for❚ in an area where office space rents business❚rates. for £12 per sq ft, would have a rent value of £1,200, and the person If you work from home you may running a business from home have to pay business rates, but each would be liable to pay £500 to £600 case is considered on its own merits. business rates – but with lots of Normally a member of Valuation other adjustments and a possible Office Agency (VOA) staff will want reduction in their council tax. to visit your property to check the facts before an assessment is Declaring that the study is wholly made for non-domestic rates. You and exclusively used for business are meant to contact the Valuation could lead to long term problems, Officer responsible for your area however, if you own the property. – but it is unclear how many home When you sell your home, there is no businesses do so. liability for Capital Gains Tax (CGT), provided that it is your ‘principal, According to the VOA website, “If private residence’. But if a room you work at or from home, the part is for business use only, then you of the property used for work may would be liable for CGT for that part be liable to business rates (also of the property. If the VOA inspector known as non-domestic rates) while was to have noted, however, that the remainder of the property will 5% of the use of that room was for continue to be liable to council tax domestic purposes, risks of CGT (although an alteration may be made liability are sharply reduced. to its banding). “To decide whether or not part of your property should be liable to business rates there are a number examples of things we have to consider, including the extent and frequency of the non-domestic (business) use Go to the relevant section on of the room (or rooms) and any the VOA website www.voa. modifications made to the property gov.uk/council_tax/working_ to accommodate that use. Each case from_home.htm. is considered on its own merits, and normally we will visit your property to Though there are no specific check the facts before an assessment rules to examine, the site is made for non-domestic rates.” does includes examples, such of those Crown copyright So you should invite a VOA inspector examples on the next page, of to your home and ask them to assess working at or from home and the business area. They will calculate their effects upon council tax the value of the room or area if it was and business rate liability. put up for rent as business premises. The rates payable differ between areas, but are typically just under half the rent value. 2 www.homebusinessnetwork.co.uk Example One: Self-employed Example Two: Doctor working The remainder of the week the doctor attends surgeries at the main Solicitor working from home from home premises, and in the afternoons he makes house calls. Other than for A detached Edwardian house A doctor uses a room in his house as consultations the room is often in a residential area owned and a consulting room three days a week. unused, but when friends come to occupied by a self employed solicitor The main practice surgery is situated stay it can be pressed into use as a who practices from the property, some three miles away near the town spare bedroom. At weekends and specialising in matrimonial law. The centre. The house is more convenient some evenings the doctor uses the front room on the ground floor is for patients who live locally. room to read professional papers furnished with sofa and comfortable or watch a portable TV away from chairs, has a TV set and ornaments/ A concrete ramp has been added to the children. photos of a personal nature are the front door and the door opening displayed around the room. It is used to the hall and the consulting room VOA❚assessment: The principal use on an occasional basis as a waiting has been widened to accommodate of this room is as a doctor’s surgery, room for clients during week days, a wheelchair. No one in the doctor’s and occasional use for domestic and as the lounge by the occupier family is disabled. purposes is minor. The room should during evenings and weekends. be separately assessed for business In the room itself there is an rates, and the remainder of the The former dining room is used as examination couch which is essentially dwelling banded for council tax. an office equipped with computer, a single bed with a cotton sheet thrown dedicated fax and telephone line, over it. A paper sheet is added and filing cabinets, desk and shelving removed after use by each patient. stocked with law books. No domestic There is no office desk as such but use is made of this room. It is used there is a computer, table and chair in by a part time secretary when a corner of the room, which are used the solicitor is visiting clients or by the doctor during his consultations. attending court. No patient records are held at the The ground floor kitchen is used for house, nor are there any medicines. preparation of family meals, but also Basic medical equipment is kept in to make tea or coffee for clients. the doctor’s medical bag or stored in The first floor accommodation of a drawer after use. bedroom and bathroom is wholly used for domestic purposes. There is planning consent for use as a branch surgery and part of the VOA❚assessment:❚The office is front garden has been surfaced to the only non-domestic part and accommodate two or three extra will be assessed for business rates. private vehicles. There are parking The principal purpose of the front restrictions in the street. room is to serve as a lounge. In this instance, the non domestic use is On the walls of the consulting room sufficiently minimal so as not to the doctor has attached pictures warrant assessment for business painted by his young children, and rates. The lounge and the remainder there are toys in the corner of the of the dwelling will be banded for room which belong to his children but council tax purposes. can be played with by young patients. There is a brass sign outside the front door to advertise surgery hours. www.homebusinessnetwork.co.uk 3 health and safety Health❚and❚Safety❚laws❚apply❚to❚ This summarises possible hazards anyone❚who❚works❚from❚home. such as electrical appliances, loads, noise, trips, fire and even There are many myths about psychological hazards such as Health and Safety legislation. It stress or loneliness. You should is wrongly blamed by everyone evaluate whether such hazards are from paranoid teachers to silly significant and – if so – whether shop staff for all sorts of half- witted guidance. But here is a enough precautions have been taken to minimise the risk. The five segregation fact: anyone using their home steps to a health and safety risk as a business workplace must assessment are: From a health and safety carry out a health and safety risk point of view, the area used assessment to identify any possible 1. Identify any hazards. for work should ideally be hazards to themselves, co-workers, 2. Decide who might be harmed completely separate from the visitors and other members of and how. rest of the home. A spare room their household. 3. Assess the risks and remove with a door that locks or an them or, otherwise, reduce them outbuilding such as a garage or That’s right. Anyone who works from as far as is reasonably possible. shed is best, so that: home is subject to the Health and Safety at Work Act 1974. There is ❚ ❚ Work equipment won’t 4. Record your findings. no need for a formal, written risk be a risk to members of assessment for any business with 5. Check the risks regularly and the household less than five employees, but that take further steps if needed. ❚❚ Risk of accidental damage does not mean that you are free You don’t have to write down the to work or equipment will from legal obligations. results of your health and safety risk be reduced assessment unless you employ five Indeed, if a visitor to your home was ❚❚ Clients can be dealt with in or more people. to hurt themselves by tripping over a professional manner a work-related parcel or one of your ❚❚ Home and business life can children’s friends was to bump into be kept separate and distinct a filing cabinet used for work, you could theoretically be sued. In an If this is not possible, then increasingly litigious culture, it is a it is advised to house your risk that you do not want to run. workstation or equipment in a The Health and Safety Executive cupboard or area that can be publishes a pamphlet entitled locked away. Homeworking: Guidance for employer and employees on health It will also ensure you don’t have and safety. To read this go to: www. any possible liability to capital hse.gov.uk/pubns/indg226.pdf. gains tax (see ‘Business Rates’). The other useful source is the Business Link website where the key information can be found at: www. businesslink.gov.uk under Home Health, safety, premises Choosing and managing your premises Use your home as a workplace. 4 www.homebusinessnetwork.co.uk licences Few home business owners give much thought to the rules and regulations they have to follow. But operating without the necessary licences could result in the business being shut down or worse, the owner being prosecuted. Whether you need to be licensed will depend mainly on what it is you do. Few would be surprised to learn that tattoo parlours and gambling and drinking establishments require local authority regulation. But what about nursing agencies or hairdressers? According to Business Link, as a rule, those looking to work with food, animals, children and in the medical sector will need a licence. That includes a wide range from child minding, body piercing and catteries to bed and breakfasts and brewing. Here are few more home-based activities that will require a local authority licence: acupuncture, skin piercing, tattooists and electrolysis, butchers shops, chaperones, credit licences, explosives and fireworks and non-medicinal poisons. And if you plan to trade on a Sunday, you will probably require a licence to do so. As licences are granted by a local authority, that is the place to seek further advice and guidance. www.homebusinessnetwork.co.uk 5 insurance Unglamorous❚it❚may❚be,❚but❚business❚ the terms and conditions as additions insurance❚is❚essential❚for❚all❚small❚ to your policy may be required. businesses,❚whether❚they’re❚working❚ from❚home❚or❚an❚office. If your work involves any interaction with the public or if they are likely to In essence, insurance for small visit your home you should consider businesses can be separated into public liability insurance. In an age of cover you’re legally obliged to have increasing litigation, it is important and cover that is optional. Many to protect against any damage that business owners operating from home may be done to the public in the aren’t aware of the cover they legally course of your work. require once they start using their home for more than leisure time. Something that many home businesses forget is car insurance. Boiling it down to absolute basics, Many standard policies cover there are two types of essential commuting but no other business cover for business: employer’s activity, so you need to ensure liability and professional indemnity. business use is included The former is legally required for any business which employs any The list of possible insurance staff (including part time) to protect requirements is potentially long. the company from any injury they Ultimately, home businesses need may sustain as a result of their work. to do a thorough risk assessment to The latter is not a legal requirement, decide what cover is essential and but it is essential cover for all what fits their budget. But in terms consultancy-based businesses as it of best practice: protects from any claims made as a result of any advice you give. ❚❚ Many home businesses get caught out on something as Updating your policy as the business trivial as not changing the car grows is critical. For example, insurance policy. temporary workers and sub-contractors ❚❚ There are some 2.8m businesses must be covered under employers’ run from home in the UK, many liability insurance – businesses risk fines of whom hold stock on the of £2,500 a day for failing to have this premises. If there was some cover in place. Similarly many people sort of accident such as a who have started a home business flood or fire it could seriously do not realise that, even if their impact upon the business. Home current role doesn’t seem to require businesses should seriously professional indemnity insurance, they consider business interruption may still need retroactive cover to insurance for these instances. protect themselves from claims relating to past activities. ❚❚ Packages/suites of business insurance products are available Home businesses also have to review for home businesses which can existing policies. For example, most be tailored to factor everything buildings and contents insurance dependant on risk and budget. policies will not cover home Make sure you shop about for businesses. Before beginning, check the best deal for your business. 6 www.homebusinessnetwork.co.uk Research❚reveals❚many❚home- based❚businesses❚have❚no❚ insurance checklist insurance❚cover❚to❚protect❚ themselves❚in❚the❚event❚of❚a❚crisis. Businesses working from a Direct Line for Business surveyed home address need to consider nearly 900 home-based business a variety of insurances: owners and found more than a quarter (28%) had no commercial Buildings❚and❚Contents insurance cover. Only 12% of those Check with your provider to surveyed would be protected if ensure they know you work from their business was unable to trade home. If they don’t your home and temporarily and only 32% have its contents may not be covered. public liability insurance. Motor Kate Syred, head of Direct Line Ensure you are covered for for Business, said: “With so few business travel. businesses being protected from a liability claim or an unexpected Public❚and❚Products❚Liability pause in trading, this research To cover injury to customers, highlights the need for business suppliers, visitors and loss or owners to think about specific damage to their property. business insurance. Without it, dreams of being a business owner Employers❚Liability could quickly become a nightmare.” Covering injury to persons employed including casual workers. Direct Line also pointed out that many business owners based at Professional❚Liability – home incorrectly think that their Protecting you against claims normal home insurance covers of professional negligence. them in the event of a claim for their business. Research found that Business❚Interruption 82% of home business owners have Covering against flooding, power home contents insurance but only failure or something which 34% have office contents cover. would affect the running of your Only 18% are covered for the loss of business and profits lost while their tools, mobiles and equipment. unable to trade from premises. Client❚Injury Should clients enter your home office. www.homebusinessnetwork.co.uk 7 mortgages, tenancy agreements and covenants Apart❚from❚planning❚consent,❚ If you use the whole of the property local❚authority❚licenses,❚specific❚ which you rented as your home for business❚insurance,❚a❚different❚ business purposes and no longer live rating❚system❚and❚legalisation❚ there, you will lose any security of covering❚health❚and❚safety❚there❚is❚ tenure you had and could be evicted one❚other❚aspect❚that❚home-based❚ by the landlord. businesses❚need❚to❚consider❚–❚and❚ which❚is❚often❚overlooked. You can use part of the home for business purposes as long as it is not Houses were built first and foremost specifically forbidden in the tenancy to be lived in. So many of those with agreement and it does not cause a a vested interest in that domestic nuisance to neighbours. As a private dwelling may have a right to object tenant you should not, however, or even block any plans for a use the home for business purposes business based there. without your landlord’s permission because, even if you have a legal If the home is rented, the landlord right to do so, your landlord may be may not allow businesses to be able to find some other reason for run from the premises. This may eviction, if they do not approve. be because their own insurance precludes it, or because such a move Covenants would impact on their ability to rent out other properties. Covenants are clauses in the lease requiring the tenant (or landlord) The property deeds may have to do something or to refrain from clauses that forbid certain practices, doing something. Again, these are often imposed to protect others’ interests. A land For example, a covenant in a owner who sells part of his plot for shop lease may specify that only a new house to be built may impose a particular type of trade may be a covenant to stop a conservatory carried out at the premises. being added, for example, as it could obscure his view or encroach on “Covenants restricting what a their boundary. landowner can do with his property are extremely common. They Finally, if the home is being bought are imposed by a landowner who on a mortgage, the lender may is selling off part of his land, in have inserted a clause concerning order to protect the value of the home working. land he retains. Nearly every new house on an estate will be subject Tenancy agreements and leases to such covenants,” says Philip Beckerlegge, partner of the City law According to the Citizens Advice firm Speechly Bircham. Bureau, a first port of call for many with a tenancy dispute, using a rented home to run a business could end up with eviction. 8 www.homebusinessnetwork.co.uk Mortgages If you are buying a home on a mortgage, and plan to start a business, you must tell the lender. The reason is simple, says Bernard Clarke from the Council of Mortgage Lenders. “They will want to know what the business is, what the home will be used for and, critically, how much of the home is being used – the proportion of the home involved. Residential mortgage providers are just that; they don’t want to provide business mortgages – there are other providers who do.” So, simply, if you borrow money to buy a residential home, and then plan to use part of that for another reason, permission has to be sought otherwise the original conditions on which the loan was given are no longer valid. www.homebusinessnetwork.co.uk 9 planning Planning❚authorities❚support❚ to work from home. The key test is dwelling house requires planning businesses❚being❚run❚from❚home❚ whether the overall character of the permission. The amended order provided❚it❚is❚not❚too❚obvious❚–❚but❚ home will change as a result of a does not alter the current position: prefer❚the❚secret❚is❚shared❚with❚ business being conducted from the planning permission for working at the❚local❚council. property.” The (other) key test it home is not usually needed where presents is a simple question: “Is it the use of part of a dwelling house Government policy supports working still mainly a home or has it become for business purposes does not from home, provided: a business premises?” change the overall character of its use as a residence.“ 1. The property is still used mainly The Communities and Local as a private residence. Government department goes The key question on which the further, saying: “Setting up a planning officer will focus is ‘change 2. There is no marked increase in business at home does not need of use’. Anyone in any doubt about traffic or the number of people planning permission as long as the four points at the beginning calling. the home is still mainly used as of this section should apply to the 3. The business does not involve a private residence.” But what local council for a certificate of any activities that could be planning authorities need to ask is lawful use to confirm the business judged ‘unusual’ in a residential whether “a material change of use does not represent a change of use area. of the building or land occurred”. for the property. That can only be judged on the 4. The business does not disturb facts of the particular case and neighbours at unreasonable local authorities have the flexibility hours or create other forms of and power to make these decisions. nuisance such as bad smells. The relevant legislation can be In other words, it’s okay so long as found at Section 55(2) of the Town nobody knows it is going on. But – and Country Planning Act (www. conversely – the planning officer opsi.gov.uk/acts/acts1990/ from the local council wants to know ukpga_19900008_en_6#pt3- about it as early as possible and he pb1-l1g55). This says that planning or she is the person that decides permission is not required if the whether it is allowed. development affects only the interior of the building, or does They are not working to specific not materially affect the external rules or a checklist covering issues appearance of the building. such as: what percentage of the floorspace can be used for your Further guidance on this can be found business? How much traffic is at Circular 03/05: Changes of Use of unacceptable? and What activities Buildings and Land (para 78 page 12) are ‘unusual in a residential area’? about Working from home and live- work units. (www.communities.gov. The official website (www. uk/documents/planningandbuilding/ planningportal.gov.uk) is meant to pdf/147573.pdf). be “the complete online planning and building resource” but it is clearly This Crown copyright publication not designed with home working states: “A fact and degree in mind. It simply restates general approach is also needed in guidelines, namely: “You do not determining when the carrying necessarily need planning permission on of business activities in a 10 www.homebusinessnetwork.co.uk further details The Office of the Deputy Prime “For example, the use by a Minister published Planning householder of a room as an Permission - A Guide for Business. office, or childminding complying In Part 2 it focuses (briefly) on with the Department of Health’s working from home and suggests standard recommended ratios, the “key test is: Is it still mainly a would be unlikely to mean that home or has it become business the character of the house’s use premises?” To read this in as a single dwelling had ceased full, go to www.communities. and would not normally require gov.uk/publications/ planning permission. Those planningandbuilding/ considering working from home planningpermission. are advised to seek the advice of their local planning authority at The Department for Communities an early stage.” and Local Government published the report used by “Once the business or non- planning officers to guide their residential use of the property investigations entitled Planning ceases to be ancillary to its use Policy Guidance 4: Industrial, as a single dwelling because, for commercial development and example, the business has grown small firms. For a full copy of the and the use of the dwelling for report go to www.communities. activities related to the business gov.uk/publications/ has intensified, a material change of planningandbuilding/ppg4. use for which planning permission is required is likely to have taken place. The key paragraphs in this Crown copyright publication “The likelihood of there having state: “Many small businesses been such a material change and other non-residential uses of use may be indicated where are started by people working the business or non-residential in their own homes, and use generates visitors, traffic, technological innovations are noise or fumes over and above likely to increase the incidence what might be expected if the of home-working. Home-working property were in use as a single does not necessarily require dwelling without any ancillary planning permission. Permission use. Local planning authorities is not normally required where should take steps to ensure that the use of part of a dwelling- such developments are effectively house for business purposes controlled, and should be prepared does not change the overall to refuse planning permission or character of the property’s use to use their enforcement powers as a single dwelling.” where appropriate.” www.homebusinessnetwork.co.uk 11 Written by David Sumner Smith and Phil Smith Designed by Alistair Martin Of Home Business Network Red Lion Lodge, Bentley, Farnham, Surrey GU10 5HY Telephone:❚+44 (0)1420 526980 Fax: +44 (0)1420 526999 Email: email@example.com First❚Edition: Published in December 2009 Home Business Network is run by WordZone Limited, a company registered in England, whose registered office is 104B Malthouse Yard, West Street, Farnham, Surrey GU10 5HY England. Our company registration number is 03166236.
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