complete guide by hedongchenchen

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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: info@homebusinessnetwork.co.uk

First❚Edition: Published in December 2009

Home Business Network is run by WordZone Limited, a company registered in England, whose registered office is
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