Eleanor Finch
Running a business from home in the UK comes with several legal considerations. These include obtaining the necessary licences, complying with local rules, and understanding tax and insurance implications. If renting, permission from the landlord is required, while mortgaged properties necessitate checking with the bank or building society. For those running limited companies, expenses and tax deductions must be carefully navigated to avoid issues with HMRC. Proper planning and due diligence are key to ensuring compliance and success when operating a business from home.
| Characteristics | Values |
|---|---|
| Property Type | If the property is rented, permission from the landlord is required. If mortgaged, check the agreement with the bank or building society. |
| Planning Permission | Required for building a bespoke space from scratch. |
| Legalities | Proper licensing from the council, business rates, risk assessments, and compliance with local rules. |
| Insurance | Professional Liability Insurance, Public Liability Insurance, Sports Equipment Cover, Personal Accident Cover. |
| Expenses | Home working expenses can be claimed through a limited company, including utility costs, equipment, and services. |
| Tax Implications | Capital Gains Tax may be triggered if a room is used solely for business purposes. Rental agreements between the owner and the limited company may have tax implications. |
| VAT Registration | Required if revenue exceeds the threshold (85k/year or 90k/year). |
| Accounting | An accountant is recommended to advise on finances and expenses. |
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What You'll Learn
Legalities and licences
When running a business from home in the UK, there are several legalities and licences that you need to be aware of. Here are some key considerations:
Property Type and Permissions
The type of property you own will impact the permissions you need to run a business from home. If you rent your home, you will need to obtain written permission from your landlord. For mortgaged properties, refer to your mortgage agreement and consult your bank or building society. If your home is freehold, you generally have more flexibility, but it's important to check for any covenants or restrictions in the title that may prohibit running a business from the property.
Planning Permission
If you plan to make significant changes to your property, such as building a bespoke space for your business, you may need planning permission. This applies to structures that do not meet permitted development rights regarding height and proximity to your house. Planning permission is typically the responsibility of the freeholder.
Licences and Registrations
The licences you need will depend on the nature of your business. For example, selling food or providing medical treatment requires specific licences. If you are offering services or advice to clients, consider professional liability insurance to protect yourself against legal action in case of client injury or damage. Other relevant insurances include public liability insurance and sports equipment cover.
Tax Compliance
Understanding tax implications is crucial when running a business from home. This includes claiming expenses, such as utility costs, phone bills, and additional household expenses due to business use. If you are self-employed, you may be able to claim a proportion of your household bills if you regularly use a room in your home for business. However, certain expenses, such as rent, mortgage, and broadband fees, cannot be claimed. Additionally, be mindful of Capital Gains Tax if you sell a room used solely for business purposes.
Business Registration and Accounting
To start trading, you will need to register your business with Companies House, which costs £50. It is also essential to understand VAT registration requirements and thresholds. While VAT registration is mandatory above a certain revenue threshold, it can also be beneficial for claiming back VAT charged by suppliers. Finally, consider hiring an accountant to advise you on finances and ensure compliance with regulations.
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Tax and expenses
If you are running a limited company from home, it is important to understand what expenses you can claim and the associated tax implications.
Firstly, if you use a room solely for business purposes, this could trigger Capital Gains Tax when you sell your home. To avoid this, give the room a dual purpose, such as a home office that is also used as a living room.
HMRC allows you to claim £6 per week or £312 per year as a flat-rate expense for working from home, without the need for receipts. Alternatively, you can claim a proportion of your household bills if you use a room in your home regularly and substantially for business. This approach may be more accurate but requires supporting records. Council tax and mortgage interest are only claimable if you're self-employed, not through a limited company.
If you run your limited company from home, you can’t claim private and business-related costs, such as rent, mortgage, or broadband fees. However, you can claim additional costs due to business use, such as increased electricity, phone bills, and gas. You can also claim equipment, services, or supplies you provide to employees who work from home, such as computers, office furniture, internet access, and stationery.
It is important to be tax-compliant when running a business, especially if it is an incorporated business. You may need to declare rent income on your Self-Assessment Tax Return if you set up a rental agreement between yourself and your limited company.
Finally, consider other types of insurance and licences you may need. For example, if you are running a personal training business from your home gym, you will need Professional Liability Insurance to protect yourself against legal action if your clients get injured. You may also need Public Liability Insurance and Sports Equipment Cover.
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Insurance
When running a business from home, it is important to ensure that you have the right insurance coverage. Standard home insurance may not be sufficient for a home-based business, as it typically does not cover business activities, equipment, and liabilities.
There are several types of insurance to consider when running a business from home:
- Public liability insurance is important if you have customers, suppliers, or clients visiting your home. It covers accidents or injuries to visitors and can protect you from liability claims.
- Product liability insurance is crucial if your business designs, manufactures, or supplies physical products. It protects you against the cost of compensation for personal injuries or damage caused by defective products.
- Professional indemnity insurance covers you if you provide advice or services that customers pay for. It protects you in case customers sue or claim compensation if they feel you have made a mistake or cost them money.
- Business equipment cover can be added to your policy to insure business equipment, such as computers, mobile phones, or specialist machinery.
- Stock insurance covers the stock you hold at your premises in case of theft, fire, or flood.
- Specialist vehicle cover is necessary if you use a vehicle for business purposes, such as a van for deliveries or transportation.
- Tax audit insurance can provide coverage in case of tax-related issues.
It is important to review your existing home insurance policy to determine if it covers your business activities. If not, you may need to extend your policy or take out a separate business-specific insurance policy. Contacting an insurance broker or specialist can help you assess your individual needs and find the right coverage for your home-based business.
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Rent and mortgages
If you're running a business from home, it's important to understand how this may impact your rental or mortgage arrangements. Here are some key considerations for each scenario:
Renting a Property
If you're a tenant, it's crucial to review your lease agreement to understand your rights and obligations regarding running a business from the rental property. Some landlords may have specific restrictions or requirements for tenants operating businesses from their premises. It's important to get written consent from your landlord before starting your business to avoid any potential issues or breaches of your lease agreement.
Inform your landlord about your plans and seek their approval. This open communication can help build a positive relationship and ensure you're complying with the terms of your tenancy.
Homeowners with a Mortgage
For homeowners with a mortgage, it's important to review the terms and conditions of your mortgage agreement. Some mortgages may have specific clauses or restrictions regarding running a business from the property. It is advised to contact your mortgage lender and inform them of your plans. They may require additional information or assessments to ensure that your business activities do not pose any additional risks or violate the terms of your mortgage contract.
Insurance Considerations
Whether you're renting or owning, it is important to consider the insurance implications of running a business from your home. Your regular home insurance policy may not cover business-related activities or equipment. Therefore, you may need to extend your existing policy or obtain separate business insurance to ensure adequate coverage for any business-related risks, such as property damage, liability claims, or loss of business equipment.
Tax Implications
Running a business from home may also have tax implications for your property. You may be able to claim tax deductions for a portion of your rent or mortgage interest, as well as certain home expenses, if you have a dedicated space for your business and incur costs directly related to your business operations. However, it's important to consult with an accountant or tax advisor to understand the specific rules and regulations regarding tax deductions in your jurisdiction.
In summary, when running a business from home in the UK, it's important to carefully consider the impact on your rental or mortgage arrangements. Open communication with landlords, mortgage lenders, and seeking appropriate insurance coverage are key steps to ensuring compliance and adequate protection for your business activities. Additionally, understanding the tax implications can help you maximize deductions while staying compliant with tax regulations.
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Planning permission
A good rule of thumb to assess whether a business requires planning permission is to consider whether someone standing outside the house for several days would notice activities that would not normally be expected to take place in a dwelling.
- The proportion of the property used for business purposes and whether parts of the home are exclusively used for business purposes. For example, converting part of your home for exclusive business use, such as a workshop, may require planning permission and make you liable for business rates.
- Whether people call at the home in connection with the business. If your business results in a marked rise in traffic or visitors, planning permission may be required.
- Whether anyone not living in the property works in the business. If someone not living in the home works there, planning permission would almost certainly be required.
- Whether your business involves any activities that are unusual for a residential area, such as noisy car repairs in the front garden.
- Whether your business will disturb your neighbours at unreasonable hours or create other forms of nuisance, such as noise, smells, or increased traffic and parking issues.
- Whether you are making major structural changes to your property, altering or extending it.
If you are still in doubt, you can apply to your council for a Certificate of Lawful Use or a Certificate of Lawfulness to confirm whether planning permission is required.
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Frequently asked questions
It is important to conduct due diligence and investigate whether your property allows business activities. If renting, you need the landlord's permission. If mortgaged, check with your bank or building society. If there are covenants on the property title, you may need permission from the management company. You should also check local rules and consult an accountant to understand the tax implications.
There are tax-deductible expenses that a business can subtract from its income to lower its taxable profit. For example, HMRC allows a flat-rate expense claim of £6 per week (£312 per year) for home-based businesses. If a room is used solely for business, it may trigger Capital Gains Tax when selling the property. It is important to understand the rules and consult an accountant to ensure compliance with HMRC regulations.
Yes, insurance is necessary to protect yourself and your business. The type of insurance depends on your business activities. For example, if you run a home gym, you may need professional liability insurance and public liability insurance. Consult a specialist to understand the specific insurance requirements for your business.
There are several other aspects to consider, such as licensing requirements, business rates, planning permission for structural changes, risk assessments, and separating personal and business expenses for tax purposes. It is essential to understand the legal and financial implications of running a business from home to ensure compliance and effective financial management.
