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In the last few years, the way that people work has undergone some profound changes. Gone is the traditional 9-5 in an office. Instead, many people now work from the comfort of their own home, in whatever way works best for them. This freedom can have enormous benefits for work-life balance, your creativity and save you time. However, running a small business is hard work as it is, and home-based working also creates additional challenges. To help, this article provides some tips to help run a successful small business from home.

Considerations Before Working From Home

Your Well-Being

Working from home can raise several well-being challenges. For example, when running a small business from home, your work is constantly with you, even when trying to rest. As a result, it can be challenging to switch off from work. Over time, this can significantly impact your well-being and your love of your work. 

Additionally, it can be challenging to focus on your work and not be distracted by other chores or the temptation to relax when you are at home. You also may begin to feel isolated or stuck if you do not have people to chat with and bounce ideas off. Unfortunately, this may cause you to lose passion for your work.

Your Home Environment

Also, consider how your home environment may impact your ability to run a successful business. For example, ask yourself:

  • Will you have room for a designated home office? 
  • Do you have sufficient space to store supplies for your business?
  • Does your home have the right equipment for your business? If not, is there enough space to keep such equipment in your home?
  • What environment do you need to attract prospective customers successfully? For example, if you take a lot of calls with clients, consider how your home noise, like children or pets, may affect the professional image you may want to convey to potential customers. 

However, this may not be an issue if you run an online business and do not often meet customers. In addition, if you live in a rural area with poor internet yet spend a lot of time on Zoom, your home may not be the ideal place to conduct this work. These can all impact how well you can run a successful home-based business.

Not everyone can work effectively at home. Likewise, it is a good idea to understand what areas constitute your strengths and the areas in which you may struggle.

If you feel like you are a person who will thrive in your home environment, there are many different things you will need to consider when working at home. 

Insurance

Running a business from your home can affect your home insurance policy. For example, you may need an additional business policy to cover your office space and the items you use for your business.

General home and contents insurance does provide some cover for people who work from home. However, it is usually limited to the items you are using for work. Typically, this will be an asset like a computer. However, home and contents insurance will have lower limits than business policies. This means that your insurance may not cover all of your assets if you have expensive equipment for your business at home.

Additionally, many home and content policies completely exclude anything involving a business. Therefore, you may need an additional business policy to cover your office space and the items you use for your business. 

Have a close read of your personal insurance policies to see if they expressly exclude your business activities.

Importantly, insurers will have different definitions for ‘business use’. So, it is best to look at your policy and see what falls under this definition. Importantly, you must be aware that if you do not tell your insurance provider that you are using part of your home for a business, this can lead to your policy being cancelled or a claim being denied.

It is far better to sort your insurance for the business area of your home before you need to make a claim.

Further, when you take on a house and contents policy that includes fire insurance, you are generally covered against natural disasters. However, this does not always apply if you are using your home for business purposes.

Health and Safety

You will need to look after your own health and safety while working from home. Additionally, if you are running a business from home and have employees, you will also need to consider their health and safety. This is the case, even if they are working from their own homes. 

You will need to develop policies and provide training to manage any potential issues.

In addition, you will need to identify what health and safety risks may arise and take whatever reasonable and practical steps you need to eliminate these risks. Potential risks will depend on the nature of the work and the personal space. 

For example, you may need to provide equipment to make their workstations ergonomic to avoid overuse and injury. It is also a good idea to keep in touch with your employees in case of an emergency.

Claiming Business Expenses

In any business, if you are working for yourself, you can claim your business expenses annually in your tax return. When working from home, you may also be able to claim a portion of your home expenses as business expenses. These expenses can be items like your:

  • home insurance; 
  • power, telephone and internet bills; and 
  • rent, mortgages and rates. 

Usually, the amount of business expenses you can claim is proportional to the floor space of your home that you use for your business.

To claim an expense, you must have a record of it, generally in a receipt form. If you do not keep a record of an expense, IRD may disagree with your decision to deduct it from your income. 

At the end of each tax year, you will need to provide evidence of any expenses against your income from the business. Likewise, you must make a fair assessment of what could be attributed to your business. If you do so, it is more likely that the IRD would accept this as a valid business expense, which you can deduct from your taxable income. 

The IRD website provides guidance on what expenses are deductible in the context of a home office. Therefore, it is a good idea to develop a clear and easy-to-use system to record your business expenses to ensure that you pay the correct amount of tax.

Key Takeaways

Running a small business from home can be a fantastic, flexible way of working. First, however, you need to examine whether it is the most suitable way for you, based on your personality, home environment and business needs. If you feel that this is a good way of working for you, you will need to consider your home insurance policies. Next, consider how you will uphold good health and safety practices in your home and, where applicable, that of your employees. Finally, you should record and claim your business expenses associated with your home office.

If you need help with running a small business from home, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page

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Frequently Asked Questions

Do I need to take reasonable steps to protect my employees’ health and safety, even if they are not working in my home?

Yes, you need to mitigate any potential risks to your employees’ health and safety, even if they work from their own homes. You will need to make sure that you recognise what health and safety risks may arise and take reasonable steps to counteract them.

Am I the right person to run a small business from home?

Think about your home environment, the nature of your business, how well you work on your own. Further, consider the budget for your business and what kind of work-life balance you want. It may be helpful to chat with friends who run their own business and do some research. Importantly, do not rush into making any decisions about your business.

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