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Running a Business From Home: UK Laws

Running a business from home or your garage can be cost-effective way to get your venture off the ground.

But before you start handing out your home address here are 5 things you should check:

5 Things to Check when Running a Business From Home

  1. Your rent or mortgage agreement
  2. Insurance
  3. Licences
  4. Business Rates
  5. Tax

1. Your Rent or Mortgage Agreement

Are you allowed to run your business from your home? Check whether you mortgage provider, landlord or freehold agreement allows you to run a business from your home.  You may find that even running a small desk based business may be prohibited in any contracts you have signed so make sure you investigate before you get started.

Planning Permission

If you need to make major alterations then you may need planning permission so will need to speak to your local planning office or local council.

2. Insurance

You may need to take out a separate business insurance policy since your home insurance may not cover your business equipment (such as stock, computers or even employees if you choose to take people on board to help you from your home).

Get in touch with your insurance company to let them know you are running a business from your home and get their advice on what is covered for your business and whether you need a separate insurance policy.

3. Business Licences

Consider whether the business you plan to operate requires a business licence which you need to apply from from your local council.  Businesses such as pet sitting, child care or food production are regulated and as such require licences to run regardless of whether the business is run from home or from separate business premises. Do check out whether your chosen home based business needs to special licence to operate.

4. Business Rates

Business Rates is a tax on business properties so that they make a contribution towards the provision of local services in the area they operate.

The amount you pay is based on the rateable value of your business premises multiplied by a rate set by your local council.  

When You Don’t Need to Pay Business Rates

If you choose to run a business from your home or garage then you don’t usually have to pay business rates if you:

  • use a small part of your home for your business, for example if you use a bedroom as an office;
  • sell goods by post;
  • If you qualify for small business rate relief.
Small Business Rate Relief

There is a small business rates relief available for properties with a rateable value of up to £15,000.

Rateable Value of Up to £12,000

You do not pay business rates on a property with a rateable value of £12,000 or less (this is the amount set for 2017/2018).

Rateable Value of £12,001 to £15,000

For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%. For example

If your rateable value is £13,500, you’ll get 50% of your bill. If your rateable value is £14,000, you’ll get 33% off.

When You Need to Pay Business Rates

You may need to pay business rates as well as Council Tax if:

  • your property is part business and part domestic, for example if you live above your shop
  • you sell goods or services to people who visit your property
  • you employ other people to work at your property
  • you’ve made changes to your home for your business, for example converted a garage to a hairdresser’s

If you are unsure it is advisable to contact the Valuation Office Agency (VOA) to find out if you should be paying business rates.

5. Tax

Tax Relief

There is tax relief for running a business from home

You can choose to claim for a portion of your household bills such as gas, water, electricity, mortgage interest or rent.

Alternatively, HMRC allows you to claim a flat rate of £4 per week for using your home for work purposes and you don’t need to substantiate this claim with receipts.

Capital Gains Tax

When you sell the home you live in you do not need to pay capital gains tax on any money you make on the sale.

However if you choose to run a business from your home you may need to pay capital gains tax on the portion you use for your business.  

It is advisable therefore to seek professional advice before you choose to run your business from home if you feel this choice may affect your Tax Position when you sell your home.

Updated 15 April 2019