Your Home Office - The Legalities
If you run your own business, working from home, there are legal ramifications which need to be considered.
There are few regulations that apply to 'normal' businesses that do not apply to 'home' businesses: you are not exempt just because you operate within your own home.
If you are considering setting up a business at home, make sure you are not breaching Local Authority regulations. If it is simply a matter of converting a room into an office and importing some office furniture and computer equipment, this is unlikely to cause a problem. If, however, you will need to hold stock (especially if that stock is in any way dangerous or could pose a nuisance) there are likely to be difficulties in a residentially zoned area. Visiting clients or customers can also be a source of difficulty, especially if parking is at a premium in your area. Keeping your neighbours happy is important when running any home business.
If you have a residential mortgage, setting up a business in the house may breach your mortgage terms. Similarly, make sure you check your insurance cover. Most insurers will happily add business items to your normal household cover for an extra premium, but business assets are not normally covered in a household effects policy. Also check your buildings insurance to ensure the cover holds if you have a home business.
Almost any business will need to register under the Data Protection Act (link to Information Commissioner's Office website - the best place to start...).
HM Revenue and Customs also provide guidance on the tax deductions available for using one's home for a business.
If you are planning to build an extension to your property for your business, there are tax implications to consider. If you borrow to finance the extension, then the interest would normally qualify for tax relief. The downside to this is that by identifying part of your building as 'business premises' you could run into Capital Gains Tax problems later. Also, if the business is VAT registered - which it must be if it exceeds the VAT threshold - then input tax on the construction and fitting out should be recoverable, at least in part.
If your business is run as a company, in law it will be a different legal person from the directors. For example, if you are employees of a company, then as well as company secretarial matters, there may be Health and Safety legislation, employment law and PAYE regulations to consider. There are exemptions for small businesses from some parts of legislation, but they are few. Don’t take liberties with the law or tax officials. Also, don’t forget that the company will need its own insurance for any items it owns.
In general, the input VAT on a supply made to a VAT registered business that is for business purposes is recoverable. Likewise, provided an expense is for business purposes, it is normally allowable for income or corporation tax purposes. Normally the basis is that each 'mixed ' private and business expense is divided in proportion to the business versus private use and split accordingly. There are exceptions to this general rule, of course!
If using a company, make sure that any receipt you get is in the company's name, not yours, or else there could be both VAT and National Insurance problems later.
If you work from home, the no-smoking regulation may apply to you. Your private dwelling does not have to be smokefree unless any parts of the dwelling are used solely for a place of work for:
- more than one person who does not live in the dwelling;
- a person who lives at the dwelling and a person who does not;
- any person, whether they live at the dwelling or not, if people who don’t live at the dwelling come to give or receive goods or services.