Originally written by Timothy Adler on Small Business

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.

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.

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

Do I need to pay business rates working from home?

Source: SmallBusinessUK

Originally written by Timothy Adler on Small Business

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.

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.

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.

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

Do I need to pay business rates working from home?

Source: SmallBusinessUK

Alex Buldock says the pandemic and working from home opened people’s eyes to the value of tech.
Source: BBC

Originally written by Sophie Attwood on Small Business

What are business rates?

Business rates are one of the UK’s oldest taxes; its origins can be traced back to the Poor Law of 1601. Business rates can be roughly defined as the tax paid for the occupation of a non-domestic property. They approximately correspond to 50 per cent of the annual rent of the property. Business rates are based on a specific value, known as “rateable value” and all commercial properties are valued on the same day.

Non-domestic rates or business rates are the way that those who occupy commercial (non-domestic) property contribute towards the cost of local authority services. They are administered and collected by local authorities. Under the business rates retention arrangements introduced in April 2013, authorities keep a proportion of the business rates paid locally. However, business rates are a controversial tax as they represent one of the biggest overheads for business.

Who sets non-domestic rates?

Business rates are set by central government more specifically the Valuation Office, an agency of Her Majesty’s Revenue and Customs (HMRC). The VOA calculates your business rates based on “rateable value” (RV). It compiles and maintains a full list of all rateable values. The rateable value of your property is shown on the front of your bill.

This broadly represents the yearly rent the property could have been let for on the open market on a particular date specified in legislation. For the current 2017 rating list, this date was set as 1 April 2015.

The Valuation Office Agency may alter the valuation if circumstances change. The ratepayer (and certain others who have an interest in the property) can also check and challenge the valuation shown in the list if they believe it is wrong.

It is also important to note that business rates are handled differently in Scotland and Northern Ireland.

How do business rates work?

It is important to understand how non-domestic rates work to ensure that your rateable value is 100 per cent correct. Business rates can be estimated using the multiplier set by the VOA. The current multiplier is around 50p to the pound and is demonstrated in the table below:

VOA business rates multiplier

Source: Colliers

The large multiplier is applicable to larger businesses with a RV of £51,000 and above and all premises which are empty with a RV of £2,900. As demonstrated in the table, the current multiplier in 2021/2022 has been frozen to accommodate for the drastic changes in the market following the Covid-19 crisis.

Another vital part of the rating system to understand is the new appeals scheme launched by the VOA in 2017 known as Check, Challenge, Appeal (CCA). This scheme places the onus on the ratepayer to check their assessment before challenging or appealing. The three stages are:

Check: At this stage factual matters about the property need to be carefully confirmed. Once the Check document is submitted the VOA has 12 months to consider it and respond.

Challenge: Once the facts have been confirmed and within four months of the Check decision, a detailed assessment accompanied with a valuation will make up a typical Challenge document to send to the VOA to change the RV. You cannot submit a challenge against the same valuation, for the same reason, more than once. If you do your submission will not be valid. Finally, the VOA will issue a decision notice on the Challenge submission accordingly. The matter should then be finalised. However, should the VOA disagree with your Challenge there is a right to appeal.

Appeal: Your appeal will need to be taken to the Valuation Tribunal for an independent review within four months of the challenge decision. If the case does reach the appeal stage, the appellants can present their case to a panel who will cross examine the case. A decision will then be issued 28 days after proceedings.

Understanding how business rates work and the procedures to challenge the current assessment can be complicated. Our expert team at Colliers can help represent and advise you.

Who pays non-domestic rates landlord or tenant?

Non-domestic rates are paid by the occupier of the premises. This will usually be the landlord or the tenant. In some cases, the landlord of the property charges the occupier a rent which also includes the business rates. The tenant and landlord can decide who is responsible to make the payment. However, the bill remains in the name of the occupier. If the bill is not paid, action will be taken against the occupier.

Properties that are empty still need to pay the bill that is due. If there is no occupier, the rates bill falls onto the landlord after a three month period. This is usually the full bill. However, some properties can get extended empty property relief.  Industrial premises (for example warehouses) are exempt for a further three months, listed buildings – until they’re reoccupied, buildings with a rateable value under £2,900 – until they’re reoccupied, and properties owned by charities – only if the property’s next use will be mostly for charitable purposes.

Rating experts can advise you and check that you are paying the correct amount.

How much are business rates?

Rateable value represents the rent a property could have been let for on a certain day set in law. It may not be the actual rent payable on this date as the law makes assumptions based on the property’s condition. The rateable value is not the amount that you pay but is used by councils to calculate your rates bill.

Depending on individual circumstances, a ratepayer may be eligible for a rate relief (i.e. a reduction in its business rates bill). There are a range of available reliefs. Some are permanent reliefs, but temporary reliefs are often introduced by the government at Budgets. Ratings experts can advise you here.

How to register for business rates?

To register for business rates, you can contact a reputable firm of rating surveyors who can contact the local council to inform them of your occupation if it is a new site that needs to be assessed. Otherwise, you can check your business rates on the VOA website and can compare properties with similar size, locality and market to your property.

However, business rates can be very technical and confusing and there are a lot of legal statute and rules to adhere to when appealing, therefore we suggest if you need advice to get in contact with a qualified representative to assist you.

Sophie Attwood is a director of rating at Colliers and head of rating in the Liverpool office

What are business rates? A guide for small businesses

Source: SmallBusinessUK

This briefing sets out HMRC’s approach to collecting tax debts and customer support as the UK emerges from the COVID-19 pandemic.
Source: HMRC

Statistics on Annual Allowance and Lifetime Allowance for personal pensions.
Source: HMRC

Spending by electronic purchasing card solution (ePCS) over £500.
Source: HMRC

Reports on departmental staff numbers and costs.
Source: HMRC

Originally written by Haydn Rogan on Small Business

Being a sole trader means that you run your own business as an individual and are essentially self-employed. This is the most popular way of trading in the UK, with almost 60 per cent of businesses opting for this structure.

By contrast, a limited liability company is a separate legal entity to you, with separate finances.

Each option has its own advantages and disadvantages, and anyone starting out in business will need to decide what will work best for them.

Here, we look at some of the major differences in terms of legal liability, taxes and bureaucracy.

Also see: Should I go sole trader, partnership or limited company?

Liability

A key advantage of a limited company structure is that it ringfences your personal assets. If your business fails or is sued, you will only lose any investment in the business and won’t be personally liable for meeting charges such as litigation costs or damages from your own finances. Although, in some cases, lenders may require personal guarantees.

As a sole trader, you and your business are one single legal entity. You are personally liable for any debts and liabilities you incur in the running of your business, including taxes, putting you at greater financial risk should something go wrong.

However, the sole trader structure can offer some financial benefits.

Any losses you incur as a sole trader can be offset against your other income for tax purposes, something that can’t be done in a limited company structure as the company is a separate legal entity. For many business start-ups, where losses may be initially incurred while the business gets established and finds its feet, operating as a sole trader can provide an advantage by allowing you to offset any losses against other income to reduce your tax bill.

In addition, because your finances and those of the business are legally one and the same, it also means you can freely borrow from the business’ funds to cover personal expenses if needed. It is important to remember, however, that you will still be taxed on any profits you withdraw from the business.

Taxes

Limited companies must pay corporation tax. This is currently levied at 19 per cent of profits, although is set to rise to 25 per cent in 2023 where profits exceed £250,000.

There are potential further taxes payable when extracting value from the business, including income tax and National Insurance Contributions (NIC), based on the salary you decide to pay yourself (which will be deductible against company profits) and taxes on any dividends (paid out of post-tax profits). You do, however, have control over the timing and method of extraction.

This contrasts with the position of a sole trader, where you’ll pay income tax on the profits of your business regardless of whether or not you have extracted those profits for personal use or reinvested them back into the business.

In addition to paying income tax on the business profits, sole traders, being self-employed, must also pay Class 2 NIC (£3.05 a week in the 2021/22 tax year if the profits of the business are £6,515 or more a year) and Class 4 NIC (9 per cent on profits of the business between £9,569 and £50,270 in the 2021/22 tax year, and 2 per cent on profits over £50,270). You must also register for VAT if your taxable turnover is above the VAT registration threshold, which is £85,000 in 2021/22. This is all calculated and reported to HMRC via the annual self-assessment process and completion of self-assessment tax returns.

Also see: 5 most common tax mistakes when you’re self-employed

Overall, due to the lower corporation tax rates, limited companies are generally taxed less on their profits than a sole trader and therefore tend to be more tax efficient. This is especially so if the profits are reinvested back into the business rather than extracted, as profits ploughed back into the business are taxed at a lower rate than would be the case if a business operated as a sole trader.

Limited companies can also offer a wider range of tax-free benefits to directors and employees and open up access to certain tax reliefs that aren’t available to sole traders, such as R&D tax reliefs.

However, unlike a sole trader, money cannot be borrowed from the business’ bank account for personal use with impunity. Doing so in a limited company will be considered a ‘benefit in kind’ and carries potential tax ramifications.

Bureaucracy

While a limited company structure offers limited liability and potential tax advantages, it involves more bureaucracy to set up and manage, which you will either need to spend time doing yourself or paying others to do for you.

Overall, a limited company structure comes with more reporting requirements and, as a quid pro quo for the benefit of limited liability, the directors of the company have a wide range of duties and fiduciary responsibilities, which can, in turn, create additional costs and paperwork.

For example, as a director of a limited company you must register the business with HMRC and are legally required to set up a separate company bank account. Accounts must be prepared each year and submitted to HMRC – and they may need to be audited. This offers less privacy, as these accounts are publicly available to everyone online via Companies House, along with your details and those of any other directors.

However, the limited company structure offers greater flexibility in the way you can allocate shares and employ people, allowing you to issue shares in the company to spouses and family and/or appoint them as salaried directors to improve tax efficiency. A corporate structure can also help to create a more professional impression to your clients and suppliers.

Due to the additional formalities in forming a company, setting up as a sole trader is the simplest way to get your new business off the ground.

To become a sole trader, you must register with HMRC as self-employed. This consists of a straightforward online registration form. Timing does matter, however, since there can be financial penalties if you fail to register before the end of the relevant tax year once you’ve started trading.

Unlike in a limited company structure, as a sole trader you aren’t legally required to open a separate business bank account. That said, it’s generally advisable to do so in order to keep better track of business income and expenditure and assist in preparation of tax returns.

Sole trader profits must be calculated for each tax year (April 6 – April 5). Like a limited company, accounts (i.e. a record of business income and expenses) must be prepared to determine the profits of the business, but unlike a limited company they don’t need to be audited or submitted to HMRC, unless specifically requested.

It is possible to change from a sole trader to a limited company, and vice versa, but it is usually easier to start as a sole trader and incorporate later rather than the other way around.

Ultimately, it is important to think carefully about what works best for you and seek professional advice if you’re unsure. Having the right structure in place to suit your specific circumstances and ambitions will put you on a strong footing for future success.

Haydn Rogan is a tax law specialist and partner at national law firm Weightmans.

Read more

Registering your business: sole trader or limited company?

Tax advantages of a limited company versus sole trader

Source: SmallBusinessUK

Originally written by Haydn Rogan on Small Business

Being a sole trader means that you run your own business as an individual and are essentially self-employed. This is the most popular way of trading in the UK, with almost 60 per cent of businesses opting for this structure.

By contrast, a limited liability company is a separate legal entity to you, with separate finances.

Each option has its own advantages and disadvantages, and anyone starting out in business will need to decide what will work best for them.

Here, we look at some of the major differences in terms of legal liability, taxes and bureaucracy.

Also see: Should I go sole trader, partnership or limited company?

Liability

A key advantage of a limited company structure is that it ringfences your personal assets. If your business fails or is sued, you will only lose any investment in the business and won’t be personally liable for meeting charges such as litigation costs or damages from your own finances. Although, in some cases, lenders may require personal guarantees.

As a sole trader, you and your business are one single legal entity. You are personally liable for any debts and liabilities you incur in the running of your business, including taxes, putting you at greater financial risk should something go wrong.

However, the sole trader structure can offer some financial benefits.

Any losses you incur as a sole trader can be offset against your other income for tax purposes, something that can’t be done in a limited company structure as the company is a separate legal entity. For many business start-ups, where losses may be initially incurred while the business gets established and finds its feet, operating as a sole trader can provide an advantage by allowing you to offset any losses against other income to reduce your tax bill.

In addition, because your finances and those of the business are legally one and the same, it also means you can freely borrow from the business’ funds to cover personal expenses if needed. It is important to remember, however, that you will still be taxed on any profits you withdraw from the business.

Taxes

Limited companies must pay corporation tax. This is currently levied at 19 per cent of profits, although is set to rise to 25 per cent in 2023 where profits exceed £250,000.

There are potential further taxes payable when extracting value from the business, including income tax and National Insurance Contributions (NIC), based on the salary you decide to pay yourself (which will be deductible against company profits) and taxes on any dividends (paid out of post-tax profits). You do, however, have control over the timing and method of extraction.

This contrasts with the position of a sole trader, where you’ll pay income tax on the profits of your business regardless of whether or not you have extracted those profits for personal use or reinvested them back into the business.

In addition to paying income tax on the business profits, sole traders, being self-employed, must also pay Class 2 NIC (£3.05 a week in the 2021/22 tax year if the profits of the business are £6,515 or more a year) and Class 4 NIC (9 per cent on profits of the business between £9,569 and £50,270 in the 2021/22 tax year, and 2 per cent on profits over £50,270). You must also register for VAT if your taxable turnover is above the VAT registration threshold, which is £85,000 in 2021/22. This is all calculated and reported to HMRC via the annual self-assessment process and completion of self-assessment tax returns.

Also see: 5 most common tax mistakes when you’re self-employed

Overall, due to the lower corporation tax rates, limited companies are generally taxed less on their profits than a sole trader and therefore tend to be more tax efficient. This is especially so if the profits are reinvested back into the business rather than extracted, as profits ploughed back into the business are taxed at a lower rate than would be the case if a business operated as a sole trader.

Limited companies can also offer a wider range of tax-free benefits to directors and employees and open up access to certain tax reliefs that aren’t available to sole traders, such as R&D tax reliefs.

However, unlike a sole trader, money cannot be borrowed from the business’ bank account for personal use with impunity. Doing so in a limited company will be considered a ‘benefit in kind’ and carries potential tax ramifications.

Bureaucracy

While a limited company structure offers limited liability and potential tax advantages, it involves more bureaucracy to set up and manage, which you will either need to spend time doing yourself or paying others to do for you.

Overall, a limited company structure comes with more reporting requirements and, as a quid pro quo for the benefit of limited liability, the directors of the company have a wide range of duties and fiduciary responsibilities, which can, in turn, create additional costs and paperwork.

For example, as a director of a limited company you must register the business with HMRC and are legally required to set up a separate company bank account. Accounts must be prepared each year and submitted to HMRC – and they may need to be audited. This offers less privacy, as these accounts are publicly available to everyone online via Companies House, along with your details and those of any other directors.

However, the limited company structure offers greater flexibility in the way you can allocate shares and employ people, allowing you to issue shares in the company to spouses and family and/or appoint them as salaried directors to improve tax efficiency. A corporate structure can also help to create a more professional impression to your clients and suppliers.

Due to the additional formalities in forming a company, setting up as a sole trader is the simplest way to get your new business off the ground.

To become a sole trader, you must register with HMRC as self-employed. This consists of a straightforward online registration form. Timing does matter, however, since there can be financial penalties if you fail to register before the end of the relevant tax year once you’ve started trading.

Unlike in a limited company structure, as a sole trader you aren’t legally required to open a separate business bank account. That said, it’s generally advisable to do so in order to keep better track of business income and expenditure and assist in preparation of tax returns.

Sole trader profits must be calculated for each tax year (April 6 – April 5). Like a limited company, accounts (i.e. a record of business income and expenses) must be prepared to determine the profits of the business, but unlike a limited company they don’t need to be audited or submitted to HMRC, unless specifically requested.

It is possible to change from a sole trader to a limited company, and vice versa, but it is usually easier to start as a sole trader and incorporate later rather than the other way around.

Ultimately, it is important to think carefully about what works best for you and seek professional advice if you’re unsure. Having the right structure in place to suit your specific circumstances and ambitions will put you on a strong footing for future success.

Haydn Rogan is a tax law specialist and partner at national law firm Weightmans.

Read more

Registering your business: sole trader or limited company?

Tax advantages of a limited company versus sole trader

Source: SmallBusinessUK