Do I need to pay business rates working from home?

Nearly half of the workforce was working from home at the height of Covid. But do you need to pay business rates if you’re working from home?

At the height of the first wave of the pandemic last April, nearly half of the working population were working from home. Since then we’ve had a succession of lockdowns, with the government now encouraging people to stay WFH until July 19 2021 and possibly beyond. But do you have to pay business rates if you’re working from home?

For freelancers, sole traders and the self-employed, not much has changed. But others new to home working will be asking which taxes they do have to pay, including business rates.

Do I need to pay business rates working from home?

You do not usually have to pay business rates for home-based businesses if you:

  • Use a small part of your home for your business, for example if you use a bedroom as an office
  • Sell goods by post

You may need to pay business rates as well as Council Tax if:

  • Your property is part business and part domestic, for example, if you live above your shop
  • You sell goods or services to people who visit your property
  • You employ other people to work at your property
  • You’ve made changes to your home for your business, for example converted a garage into a beauty salon

To find out if you need to pay business rates, you should contact the Valuation Office Agency. In Scotland, contact your local assessor.

The Valuation Office (VOA) will consider factors such as:

  • How you operate your business
  • Whether customers visit your home, or you simply post your products
  • Whether you employ people to work for you from your home
  • If special modifications been made to the workspace to enable homeworking

For example, if you have space which you occasionally use as a home office, you are unlikely to be affected by business rates – especially if that room also functions as a domestic space such as a spare bedroom.

On the other hand, if you have a space which has been adapted specifically for work purposes, such as a garage converted into a hairdresser, then it is likely you will have to pay business rates.

>See also: What is the Valuation Office Agency? A guide for small business

Do sole traders need to pay business rates?

Again, it all depends on how much of your home you are using for your WFH activity. If you’re using a spare bedroom as a home office, fine. If you’ve converted your shed into a dog grooming parlour, you may probably have to pay business rates.

If you run your business from home, you won’t usually have to pay business rates as well as Council Tax.

>See also: Business rates review 2021 – what your small business can expect

How to avoid business rates working from home

The key seems to be keeping your working from home space as multifunctional as possible, so if it’s a spare bedroom then keep that bed ready for guests or carry on working at that kitchen table.

Things blur if you have a dedicated outside space, such as a shed office, or have converted your garage into a premise which welcomes customers.

>See also: How can I reduce my business rates in England? A small business guide

How to split your home into domestic and business areas

A side return or a garage can be renovated and turned into a dedicated office space or pop-up business.

An unused room, side return, loft or basement can be renovated to transform the layout of your home and provide a dedicated office space or pop-up business.

There are several points to consider before you open your home to the public:

  • Check if there are any legal restrictions on using your home for business purposes – you can find this out by looking at the title to the property, which is held by the Land Registry, or by speaking to your mortgage provider or leaseholder.
  • Check and update your home insurance If you are using the property in a different way to that detailed on your policy, it may be rendered invalid, or the business space may not be covered. You might need to take out separate business insurance to cover your products and equipment, along with specialist personal liability insurance.
  • If you store stock for your business at your house, this could increase your premiums as your insurers might view you as being at increased risk of fire or theft.

Keeping things simple can be cheaper. It may be that the cost of converting your garage into a hairdresser or a dog grooming parlour simply is not worth it, and you’d be better off renting a commercial unit and paying business rates there, rather than splitting your home into commercial and business areas.

Further reading

What are business rates? A guide for small businesses

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...