Do you need to pay business rates if working from home?
For 100s of years, working from home has been a norm for many people. As we are all aware, with the current global ‘new normal’, we have much more Work From Home (WFH) staff and business owners. Reluctant companies have been forced to acknowledge the financial, productivity and environmental benefits with less rent, happier staff and a huge reduction in carbon emissions. Another forced new normal is the creation of a plethora of brilliant entrepreneurs from the ashes of retrenchment; if you are one of these pioneers, bravo! To help your business grow from strength to strength, we have collated some information about business rates in relation to WFH. We also include some shortlisted questions and answers to help you make the right business decisions.
What are business rates?
They are taxes charged by local councils on non-domestic premises such as commercial, retail, hospitality and industrial buildings to pay for local services. They are based on the property’s rateable value (from the Valuation Office Agency in England/Wales or a local assessor in Scotland). The business rate you pay is worked out by multiplying your property’s rateable value by a business rates multiplier, which the central government sets. If your property’s current value is wrong, contact the Valuation Office Agency and ask for a correction with supporting proof. If not resolved, you can appeal through the Valuation Tribunal. See the Scotland and Ireland appeals system here.
Is there business rate relief?
There is a slight business rate relief. If you own one rateable property ONLY valued less than £15,000 or for values below £12,000, you get 100% relief. Apply to your local council for slight business rate relief as it’s not automatic.
Do you pay business rates if you work from home?
As a home-based business, business rates might be due to the property serving the company. This is not cast in stone. Council opinions vary on whether it is due if use is of a completely separate part of the property vs. areas that also serve domestic needs. This will need to be clarified with your local council as each council
Example of home-based business and business rates
When a small magazine publisher moved into a house near Shrewsbury, the barn was set up as an office. To avoid being “found out” and receiving backdated rates, he requested the council assess the property. Business rates were due on the former-barn-now-office serving him and two staff. Council tax was applicable to the house. There were council parameters regarding the types of business that could operate from the barn. Office-based businesses were welcomed but noisy or hazmat businesses like a car servicing garage or a metal fabricator. High traffic shops were also not welcome.
Top questions asked by WFH entrepreneurs
Is permission required to set up a business in your home?
Working from home helps with life-work balance. Before embarking on this, consider these rules subject to the type of business, you are running. Contact our council and ask if you need permission from them to run a business from your home. If you are a tenant of the property, you might need permission from your landlord or the homeowners association. Even if it is not mentioned in your tenancy agreement, you should still get permission from your landlord if your work entails more than authoring novels by yourself. If the property is still legally owned by a mortgage provider, permission might be required from them. However, common sense prevails because if your work/business will not be a disruption to or be noticeable by your neighbours or outside observers, planning permission is probably not required. Planning permission arrives on your tasks horizon if your work or business involves any of the following occurrences:
Building changes that have a significant structural change to the home;
An observable increase in people coming to the home
Business signage visible from the street draw attention to the business;
Storage of business-related items visibly on the property; or
Any activities not expected in a residential area.
When in doubt, always talk to your local council or planning office.
Are there tax implications related to WFH?
As highlighted in our example business case, if there is a dedicated space in your home or on your property for business purposes, then business rates might be due. In addition, Capital Gains Tax might be applicable upon selling the property. So if you have a yarn supply business making up 20% of the property, the 20% of the profits from the sale will qualify for Capital Gains Tax. Homeowners are entitled to Private Residence Relief from Capital Gains Tax if they sell their home (if it’s the only residence or main residence), excluding business portions. Remember, these taxes only apply if an area is exclusively in the business domain. A business on your computer from your bedroom, or living area, would attract these taxes on your bedroom or living area.
Does WFH affect my self-assessment tax return?
If you work 25 hours+ from home, you can use simplified expenses as a sole trader or business partner. A flat rate for some business expenses can be paid, versus an exact calculation of business expenses ring-fenced from home bills. Some of the household costs can be reclaimed, e.g. council tax, heating and internet bills, subject to the number of hours/month.
Do I need insurance as a WFH sole trader?
Usually, home or contents insurance does not cover business components if you WFH. If you are storing stock or you have customers entering the premises, you will need business content cover insurance and public liability insurance. If your business is picking up and it becomes necessary to bring on employees to work for you at your home office, you will need employer’s liability insurance. If you hadn’t been paying business rates yet, then bringing on employees might tip your Council’s assessment of your business. Recheck with them about business rates once you bring on staff to the premises. For the stock that you are storing, as well as equipment, you should get business contents cover for the business in your home.