Starting a business from home
Starting a business from home is an exciting prospect for many, with self-employment opportunities growing all the time. And while a home-based business has many benefits, it also has a lot of responsibilities – so you need to be sure it’s a feasible option.
Here’s what to consider when starting a business from home.
Starting a business from home is an exciting prospect for many, with self-employment opportunities growing all the time. And while a home-based business has many benefits, it also has a lot of responsibilities – so you need to be sure it’s a feasible option.
Here’s what to consider when starting a business from home.
Starting a business from home
A 60-second commute, a better balance between work and family, low overheads… these are just a few benefits of starting a home-based business.
Thanks to the ever-growing convenience of technology and digital working, it’s no wonder that many people are choosing to turn their home space into a bona fide business location.
However, it’s not just a case of earning a tidy profit from your attic or garden shed. Setting up a business from home comes with its own responsibilities and possible legal requirements. There’s also insurance to consider.
But if you have a plan, you’re confident you can earn an income from it and you understand your commitments, then using your home could be a great way to bring your business idea to life.
What is a home business?
If you start a business, and the registered address is your home, then it’s a home business.
Popular home business ideas include:
- E-commerce online shop
- Craft business
- Catering business
- Cake decorating
- Writer, editor, proofreader, translator
- Accountant
- Architect
- Gardening/lawn care
- Dog walker
- Child minder
- Yoga teacher
- Personal trainer
- Tutor or private teacher
Whatever your business idea, you’ll need to do your research and come up with a solid business plan.
How to start a business from home
1. Do your research
Thorough market research is vital for determining if your business idea could work.
- Understand your target customers – is there a market for your product or services? Local or online? What price range will attract them?
- Check out the local competition – how successful are they? What makes them stand out? What is your unique selling point (USP) that will set you apart from the rest?
- Tap into your local network – are there business groups that can offer their advice and expertise?
2. Can your business work from home?
Think about how your home business will affect your family life. There are also the neighbours to consider.
Also think about the scale of your business. Do you have the right type of space to set up your home business? For example, if you’re setting up a home catering company, will your family kitchen be enough?
If customers or clients will be visiting, can you divide your work space from the rest of your home? Will you need a waiting room? If you have stock, is there somewhere you can store it?
If you need to make changes to your home, you should contact your local authority to find out if you need planning permission.
3. Write a home business plan
A good business plan should outline your business set-up, sales and marketing strategies, growth forecasts, budget and overall business goals.
A business plan you can refer to is a good way to keep you on track and focused. Lenders will also want to see a detailed business plan if you’re looking to get a business loan to help you get started.
4. Get permission
Depending on the type of business you run from home, you may need to ask permission from:
• Your mortgage provider.
• Your landlord, if you’re renting.
• Your local planning office – if you’re planning on making any major alterations to accommodate your business.
• Your local council – if customers and deliveries are coming and going; if you intend to advertise outside your home or your business needs any relevant licences.
If your business involves any type of food preparation, you’ll also need to pass a health and safety check and obtain a Food Hygiene Certificate
5. Get online
No matter how micro your business is, or whether your customer base is local or national, people will expect to refer to a website. A professional-looking online presence can boost your credibility and attract customers.
Social media is also a great way to get your business out there. Not only is it an incredibly cost-effective way of promoting your business, it can also help you network with similar business owners.
Read about what you need to start your own business.
Top tipWe Brits are devoted to our smartphones, and nearly all of us use them to access the internet. So, make sure you choose a mobile-friendly and responsive website design – this ensures your website automatically scales to fit different sized screens, which will keep your mobile visitors happy. |
What are the advantages of starting a home business?
- No commute
- No office rental or purchase expenses
- Flexibility to fit working life around your family
- Low overheads
- You can claim tax relief for things like heating and electricity that are used for your business
What are the disadvantages of starting a home business?
- It might be difficult to separate work and home life
- If you’re a sole trader, you won’t be entitled to sick pay or holiday pay
- If you work on your own, it can be lonely
- You could end up working longer hours
- Self-employment might not offer the stability of a regular salary
How much does it cost to start a home business?
It depends on your business. For example, if your work is computer-based, you might only need a decent laptop and a fast internet connection to start out. If you make or supply products, you’ll need to have a stock base before you begin.
Other costs might include:
- Insurance
- Loan repayments
- Stock, equipment and tools
- Legal or business advice and training
- Relevant licences
- Marketing materials
What insurance would I need for a home-based business?
Depending on the type of home-based business, you might need:
- Public liability insurance – financial protection against injuries to others or damage to their property while on your business premises or because of your work – this could be especially important if clients or customers visit your home.
- Employers’ liability insurance – this is a legal requirement, even if you only employ one person. It covers you against the cost of compensation claims if an employee is injured or becomes ill as a result of working for you. The only potential exception is if you only employ family members, although, getting cover will still protect you against potential claims. However, if you're a limited company with multiple directors, you'll always be legally required to have employers' liability insurance.
- Professional indemnity insurance – this can cover compensation costs if a client or customer loses money because of advice you’ve given them.
- Product liability insurance – financial protection if a product you designed, manufactured or supplied is faulty and the customer makes a claim against you.
- Business contents insurance – can cover the cost of replacing your business contents, stock or equipment if they’re lost, stolen or damaged.
- Business van insurance – if you use a van for things like deliveries or carrying your equipment and tools, you’ll need dedicated commercial van insurance.
- Business interruption insurance – can cover loss of earnings if your business isn’t able to operate for an unexpected reason – for example, a fire or flooding, or the breakdown of a vital piece of equipment.
- Self-employed income protection – could provide you with a regular income if you’re unable to work because of illness or injury.
Did you know?If you run a business from home, a standard home insurance policy will no longer cover you. You’ll need to contact your home insurance provider and tell them you’re starting a home business. They may be able to adjust your current policy. Otherwise, you might need to take out separate business contents insurance. |
How do I register a home business?
When you set up your home-based business, you’ll need register as self-employed with HMRC.
- You can register online via the HMRC website. You’ll need a Government Gateway user ID and password to set up a business tax account.
- Within 10 days you’ll receive a letter with your Unique Tax Reference number (UTC). You’ll need this to file your tax return.
- You’ll then receive another letter with an activation code for your business account.
Make sure you register with HMRC by 5 October in your home business’s second tax year or you could get a penalty.
Do I need to pay business rates for my home-based business?
If you’re a sole trader, and you only use a small part of your home, like your spare room, to run your business, you probably won’t need to pay business rates.
You might be charged business rates if:
- You own a shop and live on the premises – for example, in a flat above
- You sell things directly to people from your home
- You employ anyone at your property
If you have to pay business rates, your local council will send you a bill in early spring each year. However, you might be eligible for small business rate relief.
If you’re not sure you need to pay business rates, or want to apply for small business rate relief, contact your local council.
What else to consider when starting a business from home
When you start your home-based business, you’ll also need to consider:
- Intellectual property – if you make something unique, you may want to patent it so no one else can steal the idea. Or you might want to trademark your business logo. Visit the UK intellectual Property Office to find out how to protect your brand.
- Legal structure – if it’s only you running the business, you’ll be considered a self-employed ‘sole trader’ and will have sole responsibility for your business. This is usually the simplest way to start a home-based business. If you want to set up a limited company, you’ll need to register with Companies House and pay yourself a salary through the employee PAYE system.
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Bank account - if you want to keep your business and personal finances separate, you might want to open a dedicated business bank account.
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Employees – if you employ someone, you’ll be legally required to take out employers’ liability insurance. You’ll also need to register as an employer with HMRC and set up a PAYE system for your staff. You may also have to set up a pension for any employees.
Frequently asked questions
Do I need to register for VAT?
If your home-based business turns over more than £85,000 in a rolling 12-month period, you’ll need to register with HMRC for VAT. You’ll also have to follow the make tax digital rules. This means moving to a digital system and using specific software to send your VAT returns.
Can I switch to a business energy tariff?
If a large chunk of your energy consumption is due to your business – usually more than 50% – you might be eligible for a business energy tariff.
Businesses typically pay a lower unit price per kWh than domestic customers. That said, most businesses pay a higher rate of VAT – 20% compared to 5% paid by domestic customers. However, you might be eligible for a cheaper business energy tariff and the discounted rate if your business doesn’t use a lot of energy:
- less than 45 kWh of electricity a day or 1,000 kWh a month.
- less than 145 kWh of gas a day or 4,397 kWh a month.
Do I need to register my home business with Companies House?
You’ll only need to register with Companies House if your business is a limited company. You’ll be registered for Corporation Tax at the same time. You don’t need to register with Companies House or pay corporation tax if you’re a sole trader.
Do I need planning permission for a home-based business?
If you’re planning to do major work to your home, like an extension, to accommodate your business, then you’ll most probably need planning permission before you go ahead.
You might also need planning permission if:
- You home will no longer be used mainly as a private residence
- Your business will mean more traffic and people visiting your home
- Your business will involve any unusual activities in a residential neighbourhood
- Your business activities may disturb your neighbours – for example, more noise at unreasonable hours or strong smells
It’s always best to check with your local council to see what they say.
Do I need to tell my neighbours I’m starting a home business?
If you receive a lot of deliveries or have customers coming and going, then you should let your neighbours know. It’s always best to try to keep your neighbours sweet.
- Try to keep any disturbance down to a minimum – organise deliveries within working hours
- If you’re expecting more activity on a certain day, let your neighbours know in advance
- Maybe explain the benefits for them – for example, you can keep an eye on their house while you’re working from home.
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Mubina Pirmohamed - Business and landlord insurance expert
With almost 15 years’ experience in the insurance industry, Mubina is an expert from one end to the other. From leading the introduction of new products, marketing them, innovating them, all the way to handling claims with customers. At some point in her career, she’s done it all.