Work from home - a guide for freelancers
The growing trend of working from home will not suit everybody and requires a great deal of self-discipline, the UK's top freelance and accountancy experts have declared. There are already over 4.5 million self-employed in the UK, either as a freelance professional or as director of small to mid-sized business. The self-employed counts for nearly 15% of the workforce in the UK.
Whether you are a budding entrepreneur, an inventor with an idea or a freelance starting out, working from home offers lower overhead costs during the critical stage of company start-up. If you do decide to work from home, the Institute of Chartered Accountants in England and Wales (ICAEW) advises that you notify your local authority. 'There may be a case for paying business rates but that is unlikely provided there is no material change in the use of the house (from residential use)' the ICAEW said in a statement to Freelance UK.
Secondly, the Institute advises home workers to notify their insurance companies, as contents insurance 'will probably need to specifically detail any business assets - such as computing equipment.' Similarly, home workers should alert their building society if they have a mortgage, to check there is no potential breach of the mortgage conditions. More positively for early-stage companies, working from home allows the company director to claim a percentage of the running costs as an office expense.
John Kell, its political researcher, told Freelance UK: 'Tax relief is usually available on additional expenses incurred through working at home, though it is important that detailed records of these are kept and no attempt is made to claim relief for a notional, round figure such as 'use of home as office - £10 per week.' Excessive or ill-justified claims are, as the ICAEW rightly observes, likely to attract Revenue attention.' Nonetheless using a room exclusively as an office allows relief to be claimed for a proportion of the running costs of the company owner's house, Kell said.
'This should be calculated carefully and fairly with reference to floor area and the eligible costs can include mortgage interest (not capital repayments or endowment premiums), rent, repairs, heating and lighting.' Whether working from home or from business premises, UK residents are reminded they must notify the tax authorities.
Income Tax: If you are starting a business as a proprietor or as a partnership, you will need to notify HM Revenue and Customs within three months of starting. Failure to do so will result in a penalty.
Corporation Tax: When a company is created, Companies House will notify HMRC. The Revenue will send you a form CT41G that must be completed by all the directors within three months of issue.
VAT: To register for VAT you must notify HMRC. Registration is compulsory once the business turnover reaches £85,000 per annum. It might be advantageous to register for VAT even if your turnover is below this threshold.
However, enterprise experts suggest it takes a certain kind of personality to work from home, aided by traits of self-discipline, good organisational skills and on-off professionalism. 'While working from home has many attractions, both financial and in lifestyle terms, it's essential to recognise that has some practical limitations too: opportunities for procrastination are far greater and it can seem like an isolated existence,' the PCG said. ‘It is important, therefore, that people working from home establish their working patterns and office set-ups in as business-like a way as possible.'