The same legal requirements apply to home-based business as to all businesses. You need to know about:
- registering with HMRC and Companies House
- tax responsibilities for different types of companies
- business rates and Council Tax
- water sewerage and drainage charges
- Capital Gains Tax
- keeping records for tax purposes
Tell HM Revenue & Customs (HMRC)
You must contact and inform HMRC when you start a business.
The information you need to give depends on what business structure you've decided on.
There's guidance on what you'll need for each structure on the GOV.UK website.
These legal requirements apply to all businesses.
All new limited companies and limited liability partnerships need to be registered by Companies House.
Self-employment and tax
If you choose to set up as a sole trader or as part of a business partnership, you must send HMRC a self-assessment tax return each year. GOV.UK has information on how to do a self-assessment tax return on its website.
If you choose to set up as a limited company, every financial year the company must:
- put together statutory accounts
- send Companies House an annual return
- send HMRC a Company Tax Return
If you're a director of a limited company, you must:
- fill in a Self-Assessment tax return every year
- pay tax and National Insurance through the PAYE system if the company pays you a salary.
HMRC has developed webinars and videos about tax to help new business owners.
Value added tax (VAT)
If your business turns over more than £85,000 (2018-19 tax year), or you think your turnover will soon exceed this amount, you must register for VAT.
You can voluntarily register at any time on the GOV.UK website.
You can find out more about VAT on GOV.UK.
Business rates and Council Tax
A business based in the owner's home will not normally be subject to business rates. The exception is if a room or more than one room is only used for the purpose of the business.
An example could be if you live in a separate flat that is part of a building used for your business e.g. a hotel or pub. In this case you'd need to pay Council Tax for the flat and the hotel/pub would be subject to business rates (also known as non-domestic rates. No part of a property can be liable for both business rates and council tax.
You may find it helpful to talk with your local Assessor. Assessors are an independent body responsible for determining whether a property or part of a property should be considered as domestic or non-domestic.
You may be eligible for a discount (known as a relief) on the portion of the property that you pay business rates on e.g. through the Small Business Bonus Scheme.
Your local council can advise on any reliefs that may apply.
There's further information on business rates including useful contact numbers.
Water, sewerage and drainage charges
These may apply depending on how your property is rated by the local Assessor:
- if the property is rated just as domestic, then water and sewerage charges are paid together with Council Tax - there are no additional charges
- if the assessor rates the property as having domestic and non-domestic parts:
- the domestic part will be billed together with Council Tax
- the non-domestic part will be eligible for water, sewerage and drainage charges where it's connected to these services
The business part of the property will need to register with a retailer, also known as a Licensed Provider for services. Further information is available at Scotland on Tap and directly from suppliers.
If you're in doubt about whether any of these charges apply to your business, you should ask your licensed provider.
Capital Gains Tax
You may need to pay Capital Gains Tax on the part of your property you use for your business if you sell your home.
Find more information about Capital Gains Tax for businesses on Gov.uk.
Keeping good records can help you to:
- complete your tax returns easier and quicker
- pay the right tax at the right time
- avoid paying unnecessary interest and penalties
If you're using part of your home for business, it's important to keep your utility bills to keep track of the amount spent on your business.
You can claim a proportion of the cost of:
- council tax
- phone calls
There's guidance on the GOV.UK website to help you calculate your simplified expenses.
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