Starting a Business from Home - Frequently Asked Questions
Do I need to pay Business Rates in Addition to Council Tax?
Provided you are only using part of your home for your business, then no. Business Rates are only payable on business premises, provided you still live in the majority of your home and it is your main residence, Business Rates will not apply. If you think they may apply, or need more re-assurance, then please contact your District Council or Unitary Authority for more information and advice.
Can I claim Tax Relief on those parts of my home I use for business?
We would recommend consulting an Accountant for a definitive answer, but generally speaking where costs are paid by you for your home (eg mortgage, utilities etc) you can set a proportion of these against your tax liability. The costs you claim must be demonstrably for your business. For example if you ran your business from the kitchen table, you would not be able to claim any costs, but if you converted a spare room into an office and the floor area was say 10% of the gross floor area of your home you could set 10% of your mortgage payments against your tax. If you still had a bed in the spare room for when granny comes to stay, then you could only claim for that portion used an office. Be careful about dedicating any part of your home for business, you could end up paying business rates on it. Ensure any room is "shared" with the family.
Do I need Planning Permission?
Planning Permission may be needed for "change of use" from a domestic residence, even if only part of your home was used. Check with your Local Planning Department, but provided you neither have regular deliveries nor regular business visitors to your house, then normally this would not count as "change of use".
An occasional delivery, and postal/courier deliveries would normally not count, but if you regularly had a lorry pulling up outside then Planning Permission may be needed. Similarly, an occasional visitor to your home for business purposes would not count, but several each day, and particularly if their car parking was likely to cause irritation to your neighbours, could require Planning Permission.
How do I sort out my Tax situation?
You should obtain professional advice as this is a complicated area. However you have a couple of choices to make. You can set yourself up as a Sole Trader, or as a Limited Company. It is unlikely that you would set up a partnership. The options are discussed below.
Sole Trader
The simplest option is to register as a Sole Trader. Under this option you are taxed as an individual. You must do this within 3 months of starting your business (otherwise you will incur a penalty from the Inland Revenue), all that is required is a phone call to the Inland Revenue (IR). The IR are actually very helpful, and they run free training sessions on how to organise your finances.
However, as a Sole Trader you are personally liable for all debts and other liabilities you incur while trading. A creditor would be able to claim your personal assets (eg your home) to settle a debt.
Even if you have a full-time job and pay tax under PAYE, you must register as a Sole Trader. Once registered you become liable for Class 1 National Insurance contributions (even if paying NI through your full time job) and these are collected quarterly. The remainder of your tax liability is collected through your annual tax return. If you do not get one each year then ask the IR to send you one. You are liable for Income Tax and Class 4 National Insurance on your profits from your business. Obviously the more costs you can set against your business income the lower your tax bill. If you pay tax under PAYE as well, then your earnings as a Sole Trader may be liable for higher rates of tax if they push you over the relevant earnings limit.
For earnings under £15,000 the IR only require a summary of your business (revenue, costs, profit (or loss)).
We recommend using a tax calculator such as Intuit TaxCalc. These are Inland Revenue approved, help you put the right numbers in the right boxes, do your tax calculation (self assessment) for you, and when you are finished you can even submit your self assessment return direct to the Inland Revenue via the internet.
Limited Company
To set up a limited company you need to register your business at Companies House, and you will need a legal "incorporation" document which sets out the Business name, and the directors etc. Registration requires a fee, you could do the other stuff on a DIY basis, but you would be well advised to consult a commercial solicitor, accountant or other professional advisers. The directors and company secretary could be you and your wife/husband/sister/brother etc!
As a limited company you incur no personal liability for any debts of the Company. Creditors can only claim the assets of the Company. However, the law requires Company Directors to act correctly within the law and to run their businesses properly. If you fail to do so, this could result in a personal liability. For this reason professional advice should always be sought.
Do I need to open a Business Bank account?
Yes, you must keep business expenditure separate from domestic expenditure, even if only to know where you are. Get into the habit of using your business account for business only, and your home account for personal expenditure only. You need not open an actual business account, you could use a separate current account, but if the bank spots that it is being used for business purposes expect them to get worked up about it. Although "business" accounts incur charges you do not get on a personal account, some banks (eg LloydsTSB) have "start up" schemes which reduce or waive charges in the early years of your business. It is worth shopping around and definitely look at the "small print"!
To open a business account you will need to resolve your status (sole trader, limited company etc), have some idea of your costs/income from the business, and a "business plan" (where you are going, and how you will get there). A good bank will provide help with this.
Do I need Insurance?
If you are a Sole Trader then you are personally liable for debts incurred by your Business. This means not just unpaid bills, but could include court actions against you, or compensation claims. There are three types of insurance you need to consider carefully:
Business Insurance
Could your business survive a fire or burglary? How patient would your customers be if you lost all your records/stock, or indeed the house/office you kept them in? Normal domestic insurance will not cover business losses. Business Insurance will cover the losses from your business and additional costs you incur while you put everything back together (eg temporary accommodation, replacing phone/fax/PC etc).
Professional Indemnity Insurance
You should consider Professional Indemnity insurance, but are unlikely to need it as long as you stick to the product information from Forever Living Products. PI insurance covers the liability incurred by giving advice to someone. You could be at risk if you gave what could be considered to be professional advice of the type normally given by professionals (eg Vets, Doctors, Therapists etc) and this was later found to be incorrect and as a result the customer had incurred loss or harm.
Public Liability Insurance
Public Liability insurance is essential if you are going into someone's home, or are organising a demonstration of the products. You may have public liability insurance in with your home insurance, but this will normally exclude business activities. If you broke a valuable vase, or a customer fell over a box of products you would be liable. Remember that not only could direct losses (eg loss of earnings) be significant, but so could a compensation claim. These days there are plenty of legal firms offering to pursue personal injury claims on a no win - no fee basis.
You will also find that Public Liability insurance will be asked for by event organisers etc.
Product Liability Insurance
What if one of the products you sold was later found to have undesirable side effects? Many pharmaceutical companies are paying out for products they sold years ago. This is one you do not need to worry about, Forever Living Products carries product liability insurance for you; but you do need to be aware of it.
How about my Home Insurance?
You must tell your insurers that you are running a business from home. If you do not then you could find your home insurance to be invalidated! A standard question by insurers is "do you run a business from home?", if you answered "no" when taking out the policy, and did not advise them that you now did run a business from home, the insurer could consider the whole policy to be invalid.
Provided you are not regularly inviting customers/clients into your home, or holding lots of stock in the house, you will find that your premiums should not increase. If your insurer does want to increase your premium, then shop around to see if you can get a better deal.
My friend says I have to comply with Health and Safety Regulations?
Health and Safety Regulations are issued under the "umbrella" of the Health and Safety at Work Act. This places obligations on Employers (and Employees) to comply with the relevant regulations, breach of the regulations is a Criminal offence.
All employers (including Self Employed) have a duty under the Act to prevent accidents and work related ill health from incurring. You should find that a common sense approach to organising your home office and business will keep you right. Remember that H&S Regulations are made with personal health in mind, not to keep bureaucrats busy. Unless you employ someone in your home, there is no need to register your business. The HSE publish an information pack for small businesses which contains everything you need, and is available from their web site.
How can I keep track of what I am spending and earning?
There are many book-keeping software packages around. All work on the same principle of creating "accounts" that mirror your bank, credit card, loan, and deposit accounts. You could also use traditional paper ledgers. How you do it is not as important as being able to track your expenditure. You must keep good records as you may have to produce them for the tax inspector. Get into the habit of recording expenditure and income early while your business is small. It is also important to know how profitable your business is.