If you are planning to set up and run a 'work at home' business, there are a number of points to check before you begin.
Working from home can affect your mortgage, your home insurance, your tax situation, other people living in your house and even your neighbours.
This guide explains the advantages and disadvantages of working from home and helps you turn the place you live into a place of work.
2. What to check before starting a work at home business
Depending on the nature of your business, you may need to check with some of the following:
- your mortgage lender or landlord/freeholder - further information about using your home to run a business may be contained in your mortgage or tenancy agreement
- your insurance provider, to see if you need to take out extra insurance
the Valuation Office Agency (VOA)
HM Revenue & Customs and an accountant, to see what your income, VAT and Capital Gains Tax position is
a solicitor, to check legal aspects
- the Health and Safety Executive (HSE) or your local authority, to find out the health and safety aspects of running a work at home business
- your neighbours, to make sure they have no objection to you running your business from home
- the planning and building control department of your local authority, to see if you need planning permission or to comply with building regulations
Plan for emergencies
Working from home is not generally considered a high-risk area for emergencies. However, you should take precautions in case there is a fire in the home. You should have:
- an adequate warning system - put up a domestic smoke alarm in your work area and check it regularly
- a way of escape - work this out in advance
You could also consider buying a domestic fire extinguisher or fire blanket and keeping a small first-aid kit in your home office.
3. Building regulations and planning permission for home businesses
If running your business from home means that the use of the building changes a lot, or the activities that you undertake have an effect on the area where you live, you may need to apply for planning permission from your local authority.
You may have to apply for planning permission if:
- your home will no longer be used mainly as a private residence. This is the key test - has it become business premises first and a home second?
- your business activities will lead to increased traffic or parking in a residential area
- your business involves any unusual activities for a residential area
- your business may disturb your neighbours at unreasonable hours or create other forms of nuisance, such as noise or smells
- you are making major structural changes to your property, altering or extending it
If you need to make structural changes to your home, they must meet the requirements of the building regulations, which are enforced by local authorities.
You can check informally with your local council whether your proposed development needs planning permission. For a fee, you can also apply for a formal decision.
You may be able to make minor business use of your home without paying business rates. But if you convert part of your home exclusively for business use (like a workshop), you may become liable for business rates on it.
4. Tax considerations of working from home
Working from home can affect your tax situation:
- Your business will be able to claim tax relief on domestic bills for the areas of the house used for your business.
- If your business is VAT registered, you may be able to claim back VAT on articles you buy for business use.
- If you have set aside a room solely for working in, you'll have to work out if there's Capital Gains Tax to pay if you sell your house. Find out about Capital Gains Tax relief on your home on the HM Revenue & Customs (HMRC) website.
From 1 April 2011 for the purposes of Corporation Tax, and 6 April 2011 for income tax furnished holiday properties let on a commercial basis can qualify for tax treatment under the Furnished Holiday Lettings (FHL) rules. To qualify properties must be in the UK or European Economic Area and be available for commercial letting to the public for a minimum period.
Always consult an accountant or HMRC on taxation issues. See our guide on how to choose and work with an accountant.
Paying business rates
Business rates instead of council tax may be payable on domestic premises that are used for business purposes - for example if you work from home, provide bed-and-breakfast or let your house as a holiday home.
5. Home working health and safety risk assessment
If you use your home as your business workplace, you must carry out a health and safety risk assessment to identify any possible hazards to yourself, workers, visitors and other members of your household.
Identify and evaluate the risks
Possible hazards include:
- using work equipment at home, including electrical appliances
- your workstation set-up
- handling loads
- hazardous substances and materials
- psychological hazards, such as stress or loneliness
- slips, trips and falls
- excessive noise or vibration
You need to evaluate whether a hazard is significant and, if it is, whether you have taken enough precautions to make the risk as low as you reasonably can. Things to consider include the people who live in your home, the kind of work you do and the equipment you use.
You don't have to write down the results of your health and safety risk assessment unless you employ 5 or more people.
Using hazardous substances and materials
If you have to use hazardous substances or materials in your home-based business, you should check the safety data sheets or product labelling provided with the materials or substances to find out what specific threats they pose. You will need to make sure that hazardous substances are safely stored and correctly disposed of.
Protective clothing such as gloves and masks should be worn and windows opened during use to control exposure to the substance.
Even some common substances used in office work, such as glue, can be hazardous in the wrong hands.
6. Create a separate work area in your home
The area of your home that you use for work should ideally be completely separate from the rest of your home. It helps if you can avoid being disturbed when you are working. You also want to be able to relax during your time off without being interrupted by work. A spare room with a door that locks or an outbuilding such as a garage or shed is best, so that:
- the risk of accidental damage to your work or equipment will be reduced
- it will help you 'shut off' from home life, so that you can deal with your clients in a professional manner
- your work equipment won't be a risk to members of your household
- it will be easier to resist demands from other members of your household
Allocating part of your house as a workplace can have tax and insurance implications.
If complete segregation of work from home is not possible then partial segregation is the next best option. You could:
- use your office equipment in a general area of the house such as a sitting or dining room
- lock away equipment and work when it is not in use
- consider housing your workstation in a cupboard with lockable shutters or doors
Remember to be very careful about safety and to consider the effects on other members of your household.
It is a good idea to have a separate telephone line and answering machine for your business calls.
7. Work equipment and workstation setup
Make sure that your work equipment is safe and that other members of your household, especially small children, can't be harmed by it.
Electrical safety is extremely important and the equipment you use must be fit for the job and checked regularly. Make sure you don't overload socket points.
Setting up the work area
There are many things to consider when setting up your work area, such as:
- equipment must meet basic standards and be properly set up
- chairs should be adjustable to suit any user
- computer equipment should be safe and not affect the user's health
- computer screens should be free from glare and reflections
- workstations must be adjusted to a comfortable position, with the keyboard in the correct position
When working from home, you have to be careful about the security of work equipment and data, particularly if it is sensitive. You should consider the following carefully:
- is your home generally secured against theft? It may be a good idea to ask a crime prevention officer to look around your home and give advice on how you can make it more secure.
- have you considered how you will protect your work from other occupants of your home? If you have to share a computer make sure you back up your work regularly and that your work is password protected.
- do you have adequate insurance? Remember that your general household insurance is unlikely to cover expensive business equipment.
- do you have a lockable filing cabinet or safe? It may be wise to purchase a fireproof safe for irreplaceable items.
- can you dispose of sensitive information in a secure way? For example sensitive papers should be carefully shredded (preferably using a cross-cut shredder), and not simply disposed of with the household rubbish.
- do you ever transport your equipment or work in public places such as on a train? Equipment should never be left unattended or unsecured in a public place. Also, you should be careful about what is displayed on your screen when it can be seen by unauthorised people.
8. Advantages and disadvantages of working from home
Using your home as your business premises is a common choice for people who just need a small office, or who spend most of their time working on client premises.
Working from home can have many advantages. You may find it helps you to:
- save on start up costs, as you do not need premises
- save time that would be spent on looking for suitable property
- avoid becoming tied into long tenancy agreements
- arrange work around family commitments
- get help from family - for example they may help you with filing or general administration tasks
- save on time and money spent travelling to work
- avoid the noise and distractions of the workplace
However, there are disadvantages from home working too. You may find you have trouble with:
- separating home and work life
- the initial expense of setting up
- domestic distractions and interruptions