Use of home for small business

fluffpot

Hi everyone
My partner is thinking about setting up a new business based at home. This would require our spare bedroom to be used for storage of items. Am I right in thinking that this would mean that he would need to pay business rates rather than council tax on this room? In practice what does this mean? Are there any other implications of starting the business at home? I understand about insurance, but anything else?

Obviously want to keep costs down as much as possible at start, and as we have the space, doing this at home seems like good option.

Thanks

Fluff

PS Have also posted this in tax forum

orangeslimes

No you shouldn't have to pay business rates- most businesses run from home don't (unless you have customers coming to the premises in which case might be different)

You should keep copies of all your council tax/gas/electricity/mortgage/phone statements as you can claim a portion of your costs as business use

Savvy_Sue

You could be charged business rates on that room, but only if it's used solely for business.

If you do your ironing in there, or have a bed-settee for visitors, it's not used solely for business.

fluffpot

Thanks for replies.

The room will be used soley for storage, and we won't be able to fit an ironing board in there!

I was also reading elsewhere on the net that local councils aren't hot on enforcing the business rates where the activity is low key but that if he had customers coming to house, deliveries causing traffic problems, huge amounts of waste going to domestic refuse, then they would look into this.

How true is this?

I hear what you say about proportion of house costs to be applied to business, but I don't think it;ll be making any money for at least a year...

Savvy_Sue

Ah, but losses can be carried forward to offset against the tax to be paid on your first profitable year, and your loss will be bigger if you take your bills into account.

As for not hot on enforcing, that may be true, but if you do get a bill, expect a large one. The charity I work for is currently appealing a decision to impose business rates on the office in a residential house we run. It's around £1000, and while we will get charitable status exemption we'd rather not pay anything. Especially as the room is also needed for night staff to sleep in, but as there was no evidence of this use when the valuation officer inspected, he rated it as solely office.

naijapower

Operating from your home is the best way forward. it is cost saving

slipp_digby

some examples here

http://www.voa.gov.uk/council_tax/examples_working_from_home.htm

nothing directly relevant but illustrative of the principles (note case by case assessment).

if your house is ratable for business rates, you will pay council tax on the residential part and business rates on the other part.

make strenuous efforts to set it up using their principles i.e. dont set it up soley for business usage. you will open a big can of worms if it is ratable (I believe there are potential personal capital gain issues when you sell the house if part is business rated)

slipp_digby

orangeslimes wrote: »

You should keep copies of all your council tax/gas/electricity/mortgage/phone statements as you can claim a portion of your costs as business use

you'd struggle to argue most of these with HMRC with the exception of gas/electric proportional to the floor area of your 'office'

if you are claiming a portion of your council tax/mortgatge is due to business usage, surely this is an admission that part of the property should be eligible for paying business rates?

HMRC use to recommend £2 per week without receipts for home working - I think its now £5, anything above this needs to be strongly justified

nixinix

I was told, many years ago by business link, that you should make sure that you keep something in the room which is personal - i.e. box of spare towels - so you don't pay business rates, and also you shouldn't claim for the % of space of the house for rent/gas/elec etc as when you come to sell your home in the future you can get stung, for I think it as capital gains tax (??) for that proportion of your home - as it now falls into a business premises. Sure I haven't explained that very well, hopefully someone can clarify...it was a few years ago!

slipp_digby

nixinix wrote: »

I was told, many years ago by business link, that you should make sure that you keep something in the room which is personal - i.e. box of spare towels - so you don't pay business rates, and also you shouldn't claim for the % of space of the house for rent/gas/elec etc as when you come to sell your home in the future you can get stung, for I think it as capital gains tax (??) for that proportion of your home - as it now falls into a business premises. Sure I haven't explained that very well, hopefully someone can clarify...it was a few years ago!

There is nothing wrong with claiming an allowance for working at home to offset some of the costs which you incur and this will be allowable by HMRC although its a bit of a grey area once you go over the allowable limits. This is a company tax issue (what is reasonable/allowable to be paid) and personal from a P11d point of view (i.e. would need to be declared on the OPs tax return self assessment if a 'benefit').

I think mortgage payments/council tax are potentially dodgy ground.

If part of the house is taxable at business rate it brings issue wtih CGT as you lose your exemptions (Personal tax issue in the event of a house sale)

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4020890

nixinix

Thanks slipp_digby - glad someone understood me lol and then could explain it!!