A guide to running a business from home

Running a business from home is very popular. Government statistics in 2014 showed there were 2.9 million home-based businesses in the UK. A decade on, that figure is likely to be much higher given the rise in popularity of side hustles and the continued trend for working from home following the coronavirus pandemic.

Working from home is a great way to run your business. Indeed, some of the world’s most successful companies, including Amazon and Google, started off that way. Home-based businesses offer many benefits, but like all entrepreneurial ventures, you need to stay focused and informed so you manage your business effectively.

Legal requirements for home-based businesses

There are various legal requirements to consider when running a business from home.

1. If you own your property, you may need to switch your mortgage to a commercial product. Speak to a mortgage provider for more advice. Those who are renting might need to ask for permission to run a home-based business from their landlord.
2. If you intend to make significant alterations to your home to run your business, you might need planning permission from your local planning office. Find details for England and Wales here, for Scotland here and for Northern Ireland here.
3. Some home businesses, such as childcare services, hairdressers and those selling alcohol, require a licence to operate. Contact your local council for advice and find details on licences here.
4. There are various other reasons you might need to get permission from the council for your home-based business. These include displaying advertising outside your home or your activities might disturb your neighbours.
5. Home business owners might need to comply with health and safety regulations. For example, founders of home-based food companies need to ensure premises are kept clean and waste is disposed of properly.

Tax implications for running a business from home

There are various expenses you can claim to reduce your tax bill. If you work from home, you can claim tax relief on some related costs.

Sole traders and business partnerships can use the HM Revenue & Customs (HMRC) approved simplified flat rate for working from home. You can use this rate as long as you work from home for at least 25 hours a month. On top of this flat rate, you can also include a business proportion of telephone and internet costs.

The other method is claiming a portion of household bills by dividing it by the number of rooms in your home and the number of rooms used for the business, or the amount of time you spend working from home.

You might have to pay business rates while running a business from home, and you may qualify for small business rate relief. For advice, contact the Valuation Office Agency or a local assessor in Scotland.

If you use part of your home exclusively for business, you might need to pay capital gains tax if you sell it.

Productivity tips for home-based entrepreneurs

It can be distracting when working from home so structure your working day to ensure you’re as productive as possible. Have a good working environment, with a suitable desk and chair.

Think about when you’re the most productive. If you work better in the afternoon, make this the time for tasks that need the most focus and spend the morning tackling general admin, responding to emails etc.

Use project management tools like Basecamp, Asana and Trello to organise and manage your tasks. You can also use apps to automate activities such as posting on social media with services like Hootsuite, Buffer and Later.

Taking breaks can help you to stay productive, and outsourcing areas such as accounting to an accountant lets you focus on building your business.

How to balance work and personal life when working from home

Keeping your business separate from your personal life can be tricky when you operate from home, but it’s important for your wellbeing.

Having a dedicated space where you run your business is preferable. A separate office is ideal, but it can also be a bedroom, kitchen or elsewhere. The key thing is not working in multiple rooms as you may then associate the whole house with your work life and find it harder to swtich off from work.

If you are working in multi-purpose rooms, such as a bedroom, pack away any equipment when you're finished so it can return to being a bedroom.

Stick to regular working hours to set boundaries in keeping your work and personal life separate and managing stress. If you work long days and don’t switch off from work, it can lead to burnout, anxiety and other mental health challenges. For tips on managing your mental health, read this guide.

If you live with family members, don’t neglect them. Instead, you coulld structure your day to spend time with your children when they come home from school. Then, you could work a few hours in the evening when they go to bed. Avoid having your mobile phone with you at the dinner table so you aren’t tempted to check your emails.

Insurance for a home-based business

If you run a business from home you might need to take out separate business insurance policies. Types of business insurance include:

• Public liability insurance: Covers you if your business causes injuries to a person or damage to a property.
• Employer’s liability insurance: Covers you if an employee gets ill or injured while working for you. This is legally required if you have at least one employee.
• Professional indemnity insurance: Covers service-based businesses if the business activities cause loss or damage.
• Stock insurance: Covers you if stock is stolen or damaged, which could be important if you store stock at home.

Financial management for businesses run from home

Home-based business owners should practice good financial management. Using cloud accounting tools like Xero and QuickBooks can help you efficiently track expenses and ensure you claim them in your self-assessment tax return to reduce your tax bill.

You should keep a close eye on your cash flow and use cash flow forecasts to keep you on track. Constantly monitor your costs and take action if you are spending too much.

Get help with your home-based business

TaxAssist Accountants can help you with the right advice to support your business. We can help with taxes, accounting, bookkeeping and payroll. Contact us to learn more about our services and to book a free initial meeting, or call on 01438 340111.

Last updated 12 Feb 2024 | First published 12 Feb 2024

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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