Another question!! - Change of Use (working from home)

[pren]

Sorry! Yet another question :roll: :lol:

I've been looking through the Planning Portal for whether running a small woodcraft business from home counts as a Change of Use to the property. It wouldn't involve any physical change as I'd just be working from my current workshop. There wouldn't be any increase in visitors and material deliveries would still come from the back of the my car.

I only intend on working from home on fridays to test the waters and see if I can make a go of it. The majority of projects will use quiet-ish tools such as a scrollsaw, bandsaw and sanders. If it does take off, I'll look to move to an industrial workshop. There will be the occasional use of routers and my tablesaw which are quite loud. Despite being occasional; is noise still noise in the eyes of the planning department?

From the planning portals list of questions, I could only answer 'yes' to the one regarding noise nuisance to neighbours.

My main obstacle is that my mortgage company (Norther Rock) state that I cannot change the use of the property. If my proposal doesn't constitute a change, then I can lawfully register my business to my home address :?: and start paying Johnny Taxman :roll: :lol: .

I know that my next step is to contact the planning bods but I'd like to know beforehand if anyone else has been through this process and what I can expect. Might rebuilding my workshop with an eye to soundproofing help matters?

Many thanks in advance!

Bryn :-D

 

[ste_5150]

I'm not an authority on this at all, but I always understood that the main factor was whether clients visit the premises or not. As I say, this is not an informed reply, just a steer based on what I was led to believe a long time ago, when I used to work from home...

 

[Anonymous]

You don't have to have your house as the registered business address. Likewise if you're only testing the water there is no need to set up a registered business.

I don't know the exact legal details but there are thousands of people around the country who work at home.

Dave

 

[StevieB]

Wouldn't think it is a major issue as its main use is still as a residential property. People such as small caterers, or website designers or home workers etc cannot all have commercial rather than residential mortgages surely! I would give it a go and see how you get on - for a Fri afternoon test of the waters I doubt any neighbours will even notice to be honest.

Steve.

 

[Karl]

I don't know about the planning requirements for working from home, but be aware that if you are doing work on a "Self Employed" basis, then you must notify Inland Revenue within 3 months of commencement. There is a Self Assessment helpline which is quite good.

Cheers

Karl

 

[BigShot]

2 ways of working for yourself.
"Sole trader" or by setting up a "Limited Company".
The approach to the two are drastically different.

A big difference is that as a sole trador you are personally responsible for anything that might go wrong. If something you make hurts someone, for example, you are personally liable and any legal action taken could be enforced against your home and belongings.
A Limited Company is Limited LIABILITY - meaning that THE BUSINESS is responsible. For some people that separation between your personal life (home and belongings) is a useful thing. Not to suggest it should be used as some cowboys do - but if the worst happened you at least wouldn't stand to lose your home, though the business assets would be at risk in that case.

For the Ltd. I'm fairly sure you need to register a "head office" or some such that isn't your place of business with Companies House. I can't be 100% on that, but I think I recall correctly anyway.
You'll be needing an accountant too.

As a Sole Trader Karl is right, you've got to inform the inland revenue within 3 months of starting work. If you don't they'll sne dthe Sherriff's thugs around to kick over your water butt, scare your wife and kids, scatter your livestock and if you're really unlucky they might even set fire to your thatched roof.


As to change of use, I don't believe it is such. Change of use would be something like turning the whole house into a production line or offices or something.
The fundamental use will still be as a single swellinghouse.


If you are unsure I'd suggest you call your local planning department and have a chat with the (sometimes) helpful (sometimes useless) people there.

You shouldn't need to give them specific details to discuss this. Just explain to them that you'd like to operate a business from a home workshop (garage or something?) - that it would involve some power tools and would they consider it needed planning permission?

Personally I can't see a reason for such a restriction, especially considering hobbyist woodworkers (especially retired ones) may well do far more work than you're suggesting, producing far more noise, and no planning permission is needed.

It's not like you'll be running routers and the like for hours on end like you would if you were running a production-line.

 

[pren]

Thanks for all the replies!

Right, it would seem (as usual) that I've been working on assumptions rather than facts.

I thought the route I needed to follow went something like:

>>> Change the use of my property from residential to part residential part commercial (attracting business rates from the council).

>>> Obtain commercial insurance for my workshop and public liability insurance.

>>> Register with HMRC as sole trader/self employed and prove that my work area was lawful and above board.

>>> Register my business with Companies House.

I really want to cross my eyes and dot my T's from the start but having to follow the above route is what has been putting me off (as well as trying to wrap my head around tax).

So all I actually need to do is (until things take off or not) is register with HMRC? If I register my home address with them, am I going to get a visit from the council to inspect .... stuff .... or are the two bodies separate? I've had a look at the HMRC registration form and no-where on it does it ask to prove my work shop is listed as commercial.

I sure know how to make things complicated!! :roll:

Thanks for your patience with the village ***** :lol:

Cheers.
Bryn :-D


EDIT: Cheers, BigShot! I posted at the same time as you. That's a huge help! I'll sort out Johnny Taxman then take it from there.

 

[MIGNAL]

You don't state whether the workshop is contained within the house itself.
You will have to pay some Business Rate on any type of commercial workshop, even if it is not a change of use.
Any commercial workshop will invalidate the current house (buildings) insurance. There just aren't that many insurers who will cover, your choice will be limited. My insurers (buildings only) insisted that I take out both public and product liability.

 

[ste_5150]

I don't think you really should be worrying about being a Limited company (I can't see any real advantage...could be wrong..), so Companies House wouldn't be involved. I see BigShot's point about liability, but you should be making sure you're covered by a good Public Liability insurance for that side of things. As suggested though, you need to work through the problems that will cause in relation to your residential policy.

What I did when starting my business a while ago (not woodworking, sound recording), was contacted my local Enterprise Centre. It's a council-run thing so doesn't cost, and they assign you a business adviser. I think everyone's advice on here is well worth having, and has a knowlegde of the specific industry you're entering which you won't find anywhere else, but do make sure you get advice from the Enterprise Centre as well. They have more generic business-based information and advice than most of us can give.

Something else worth noting - you're in a European Social Fund area that means you are probably entitled to some grants and funding assistance. I'm in Wrexham, and I got half of my marketing and website fees paid for upon startup. The Priority 1 area extends right across the North Wales coast, through to Anglesey, so ask at the Enterprise Centre about assistance like grants and other funding.

Edit: Details I found on Google were as below, but I can't get on the website at the mo!

Denbighshire Enterprise Agency
http://www.denbighshire.gov.uk
Lon Parcwr Ind Est
Ruthin, LL15 1NJ
01824 705782


Another Edit: this looks good, too - Denb. Council links to it: http://www.businesslink.gov.uk/

 

[BigShot]

Ste - the other aspect of liability I didn't mention (forgot to include it) is liability for debt.

If you're a sole trader debts are YOURS. If you direct a limited company the debts belong to the COMPANY.

Dead right that companies house wouldn't be involved.

Bryn, if you're a sole trader you are just that, sole. Not a company and so nothing to do with Companies House.

I found an excellently informative leaflet on the HMRC website a while back. Most of it stuck in my craw cos I'm a "bit" anti-taxation (particularly tax on income) but that's another discussion.
It actually gave some input on why you might want to register a limited company and why you might want to operate as a sole trader.

One bit of advice I'd give is this though...
The tax man is not your friend. The tax man is a sleeping lion and if you put a foot wrong he'll bite it clean off and then bully you for the other one.
I wouldn't say a single word to the tax man without first getting some proper advice from a professional.

Either a business startup adviser, someone at your bank, even the Citizen's Advice might be able to offer some direction.

The tax man is a git though - a bully and a scoundrel too.
There might be some lovely people working at HMRC - but they are all working for a real nasty fella (he looks all friendly in his bowler hat on the literature and ads, but he's not) so get some proper advice to make sure you approach him in the right way - then you'll be able to keep him as the benighnly smiling mugger instead of the bully holding you upside down by the ankle shaking all the loose change out of your pockets.


It looks like Ste has given you some pretty good advice there.



I hope I've not left anyone with the impression I like the Tax Man.
If so let me clarify, I don't.

 

[BigShot]

Further to that post I'll just clarify.
I don't hate the tax man so much because I've been caught out doing anything wrong - personally I like to keep it all above board so I'm in the clear.

Nor is it an in principle objection (though that's part of it).

My deep dislike of HMRC comes from seeing someone I know rather well play a completely and utterly honest game, never dodging a penny of tax, go through about 2 years of hell because a bank screwed up dealing with an ex business partner's house sale. Seeing an honest person suffer 2 years of sleepless nights worrying that they are going to lose everything they have - asking permission from a scumbag tax man to write a cheque, itemising everything from his childrens' clothes to his wife's wedding ring, and despite the tax man saying (and I quote) "I see a lot of people who try to play the system, but through all of this you've been completely open and honest and I've never seen that before. You've done nothing wrong." he picked up an old tax return that had gone in about a day late and fined him for that - as if he hadn't suffered enough being dragged through a 2 year investigation for nothing. Not so much as a verbal apology for the stress, worry and stomach ulcers.

I'll say it again:
The tax man is not your friend. The tax man is a sleeping lion and if you put a foot wrong he'll bite it clean off and then bully you for the other one.
I wouldn't say a single word to the tax man without first getting some proper advice from a professional.

Sorry if this sounds bitter. I'd just hate anyone to end up in the same position. It's really horrible what HMRC will do to a person when want to.

 

[MIGNAL]

They've been fine with me. In fact one person I know who really did take the p*ss got off very lightly. Generally speaking if you keep your nose clean and play it by the book there's nothing to fear. There's always going to be the odd case, it's just the law of averages.

 

[pren]

TBH, it's been the tax part of things that has been scaring me off for so long. I just can't seem to get my head around it.

If you'd oblige, I have a scenario I'd like to put to you just to see if I understand things.


Year 1.

I make £2000 profit in the year, working 1 day a week.

I spend £1000 on tools for the business.

Insurance for the business (PL and building/contents) costs £100.

Business rates are £100 (made up figure).

Allowed running costs for the business (worked out based on usage and floor space of the home) come to £500 (made up figure).



Would I be right in thinking that I can claim £500 back as capital allowance (first year) on the tools, as well as £100 for insurance, £100 business rates and £500 for running costs?

If so, does that mean I pay tax on £800 @ 20% = £160 tax?

Sorry if all this is mind-numbingly simple and has been asked before by me. I just want to see if I understand it.

Many thanks!

Bryn :-D

 

[Steve Maskery]

Pren
Your first statement is that you make 2K profit.
You then talk about depreciation, costs and capital expenditure.

You cannot calculate Profit until after you have established these other figures. I'm not trying to Have a Go, honest, but it seems to me that you are making the same basic mistakes in your calculation of going Self-Employed that many people make.

I think you need to have a chat with your accountant, because I can see that you are not yet in a position to create a Business Plan. And if you fail to prepare, you must be prepared to fail. Not original, I know, but true, nevertheless.

Profit, added value and turnover are all very different things.

S

 

[Karl]

I think you need to have a chat with your accountant,

I doubt that he would be asking these questions if he had an accountant

Bryn - PM sent.

Cheers

Karl

 

[thomvic]

This thread seems to have drifted somewhat.

The original question asked whether using a home workshop for a business amounts to a "change of use." It most certainly is a change of use but at the level of business proposed, providing it doesn't upset the neighbours, the local authority is unlikely to be interested.

You should however be aware that basing a business at home could be in contravention of the original planning consent and/or could be contravening a covenenant in the property deeds. It would also be likely to contravene the terms and conditions of your mortgage. Usually mortgage providers will waive the condition in exchange for a marginal increase in your mortgage rate.

Richard

 

[MIGNAL]

Apart from the £2,000 profit (do you mean 'takings'?) all the others are a cost to the business. They can all be set against your tax liability.
Capital Allowances (tools) may be treated slightly differently. If they are a small purchase you can claim the full amount in the same year. You can almost treat them as though it's another cost to the business - such as your insurance. Obviously you can only claim that particular purchase once
For large Capital Allowances you can claim a % of it's total cost each year.
At least that's my understanding. I must admit my knowledge is very limited on such matters.

An accountant is only really any use if you are making sufficient profit. If it's a tiny business, hardly making anything there's not much point in paying an accountant. You'd be better off reading up and finding out what can and cannot be claimed. By law you are required to keep books anyway. It's not that much work to produce a profit and loss account from the books that you keep.
IF you start to make half decent money an Accountant really starts to make sense.

 

[pren]

Pren
Your first statement is that you make 2K profit.
You then talk about depreciation, costs and capital expenditure.

Hi. Bit of a muddle with my terms there. By 'profit' I meant the amount left after costs for materials but before other expenses/deductions.

would that be gross income?

You are right that I need to speak to an accountant. I have one in mind but I wanted to know what I didn't know first before I went to speak to him to make sure I asked the right questions. That would appear to include questions on e-v-e-r-y-t-h-i-n-g :lol:

The subject of covenants on the property rang a bell. I've been looking at my mortgage T&C's which didn't mention anything other than prohibiting change of use. Having just looked through the search documents from the conveyancing solicitor, however, it appears that there are covenants restricting the properties use to domestic dwelling only. No trade or business.

Is that me skuppered then or is there a way around it? The same set of covenants that apply to me also apply to my neighbours. My next door neighbour has a huge caravan on their lawn (contrary to covenant) and the guy a few doors up has a commercial art studio in his garage.

I need a coffee.


Cheers,
Bryn :-D



ps: thanks, Karl, for your offer. I will more than likely be taking you up on it!

 

[LeeElms]

Covenants seem to only matter if those responsible for the covenant choose to enforce it, or if there is a knock on effect of going against them.

(The builders of our house imposed a covenant that says we have to get permission for certain changes, and pay a fee for them to grant it. They have no intention of doing anything if we didn't ask ... but, when we want to sell the house, the buyers solicitor could ask whether we had obtained permissions when required ... so we paid !)

 

[jlawrence]

Lee, I had something similar on my previous house - like you I just paid as it was the least hassle way.
One of the covenents on my current house is that I can't put a lime pit in the garden - damned if I can think of a sensible reason why I'd want one anyway.
Most people aren't even aware that there are covenents on their property and my guess would be that even less people pay any attention to them.