If you have a passion that you can turn into a financially viable operation, the idea of running a business from home may sound appealing. Running a business from home is common for: 

  • entrepreneurs looking to test the viability of a new business idea;
  • freelance writers (journalists, bloggers);
  • anyone looking to start an eCommerce store or online business;
  • hairdressers and barbers; and
  • family-owned childcare providers. 

This article will discuss the various considerations of starting a home business in New Zealand, including:

  • some of the legal and tax implications; and 
  • how to access free resources and help available to you. 

Before You Start  

From getting an NZBN to registering with Inland Revenue, there are a number of essential things to do when you start a business in New Zealand, whether you choose to operate from home or not.

In addition to the above requirements, there are other council governed regulations that apply to home-based businesses only, including: 

  • zoning (you may or not be able to operate a business in your area);
  • signage rules (you may need to modify your building to accommodate for signage rules);
  • car parking (you need to comply with your district transport requirements);
  • building consent (you may need to get building consent if you decide to alter the structure of your building, or if you carry out plumbing or drainage work other than simple repairs); and
  • industry-specific licenses (for example, registration, verification and food grades are required to start a food business).

Start by speaking to a council planner about zoning and checking if you need a licence to operate. These meetings are generally free and can take place over the phone or in person.

Getting Your Home-Based Business Insured  

When you think of getting your business insured, the first thing that may come into your mind is commercial property insurance. Still, there are other equally important types of commercial insurance, including: 

  • commercial motor;
  • business interruption;
  • liability; and
  • cyber.

Different businesses have different risks. Some are not obvious, however, which results in many business owners under-insuring their businesses. Therefore, your commercial insurance coverage should be tailored to your business. This can become a very complicated exercise, as some insurance types may require:

  • finding co-insurers to share the risks with; or 
  • developing a layered structure. 

The Insurance Council of New Zealand has a helpful guide available that explains the various types of insurance you might want to consider for your business. Otherwise, an insurance broker or advisor can help you consider everything from setting premium allocations, financing and collection to competitive pricing, coverage and exclusivity.

Commercial Property Insurance 

When you run a business from home, you are not automatically covered by your household insurance, and your home and contents policy may not provide cover for ‘business use’ (insurers define this term differently).

Some insurers will agree to insure your property even if you use a portion of it for business purposes, but it depends on factors such as:

  • what your business activities are (for example, selling products online is less risky than producing goods);
  • how many customers you service at your home, and how often;
  • whether you are using or storing materials that may cause a fire;
  • whether you are using or storing any valuable materials (or cash) that may increase the risk of theft; and 
  • whether you are taking measures to protect your home from these risks.

When you take on a household and contents policy that includes fire insurance, you are generally covered for natural disasters through EQCover (the New Zealand government’s natural disaster insurance product). However, running a business from home may affect your protection against natural disasters.

For example, if more than 50% of the floor area is used for your business, then the commercial component of the building will not be eligible for EQCover. Talk to your insurance provider and advisor about this. 

Liability Insurance for Contractors 

You should consider, at a minimum, getting a general liability cover. This is the most basic type of liability insurance. It can protect you if you cause harm to a third party or their property. 

In some instances, contractors are required to have liability insurance, and in other cases, the business covers it. It is best always to check the terms and conditions in your contract.

Another common type of liability insurance in New Zealand is professional indemnity. This covers you in the event something goes wrong as a result of advice, services or designs provided to a client. 

Statutory liability insurance can protect you and your business from insurable fines, penalties and reparations for any unintentional breaches of most New Zealand laws.

ACC Cover for Sole Traders

When you work as a sole trader or contractor, you are covered by ACC. Running your business from home does not affect how much you pay in ACC levies because they are based on the type of work you do and how much money you make. However, you can control how much you pay in levies by deciding what percentage of your income you want to be covered for.

Health and Safety Responsibilities for Employers

When you run a business from home that employs staff, it is your responsibility to work with them to design procedures to ensure that they can manage their health and safety when working from your or their home. This generally involves: 

  • identifying work-related risks; 
  • eliminating or minimising risks where possible; 
  • providing safe equipment;
  • ensuring that your staff understand what to do in case of an emergency; and 
  • maintaining regular contact.

Tax Essentials for Home-Based Businesses

When you operate a business in New Zealand, you have some essential tax responsibilities. These include: 

  • getting an IRD number; 
  • registering for GST; and 
  • completing financial accounts and various tax returns each year. 

However, there are also advantages to using your home for work purposes.

For example, you can claim a portion of your household expenses, based on the area of your home that you use for business. 

If the portion of your home that you use for work is entirely independent of the rest, working out how to split your household expenses is easy. You can use the percentage of floor area to estimate the portion of the cost to claim. Otherwise, you need to consider the amount of time that part of your home is used for income-earning activities.

Another alternative is using the square meter rate option. This is based on the average cost of utilities per square metre of housing for the average New Zealand household. A disadvantage of this method is that it does not include your costs of mortgage interest, rates or rent, so you would still need to use the percentage of floor area. 

There are specific rules for claiming your expenses. For example, you:

  • cannot claim GST for your expenses if you have registered for GST; 
  • can claim a portion of your mortgage interest, not principal; 
  • cannot claim depreciation on your home; 
  • can claim a 50% deduction of your telephone landline rental and 100% of business-related toll calls; 
  • can claim a proportion of your internet costs, but you need to arrive at a fair and reasonable estimate; and
  • need to keep invoices and other records for these expenses.

Key Takeaways 

From local regulations to getting enough insurance coverage, there are a number of critical issues to consider when starting a home business in New Zealand. First, you should talk to your local council about which regulations may apply to your home-based business, including zoning, signage and industry-specific licenses. You will also need to consider home-based business insurance, employee health and safety and how you will claim a portion of your household expenses. If you need help with the legalities of getting your home business up and running, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

FAQs

Can you start a business out of your home?

As long as you comply with your local council regulations, you can run your small business from your home. To be successful, you do not need to lease a commercial space. In fact, running a business from home has the advantages of reducing your overhead expenses which can have a positive impact on your margins.

What should you do about insurance coverage if you have a home business?

When you run a home based business, you are not automatically covered by your home and contents insurance. Depending on your business needs, you may have to get commercial property, motor, business interruption, liability and cyber policies. Your business insurance policies should be tailored to your business. An insurance broker can help you get access to the most competitive policies.

Is it a legal requirement to have a health and safety policy in New Zealand?

If you employ staff, you have a legal obligation under New Zealand law to work with your employees to design and implement health and safety procedures. These procedures should allow your staff to manage their health and safety when working from your or their home.

What can I claim as a business expense in New Zealand?

When you run a home based business, you can claim a portion of your household expenses, based on the area of your home that you use as an office space. The expenses you can claim include rates, insurance, power, telephone, internet and rent or mortgage interest. To estimate the portion of the cost to claim, you can use the percentage floor area or the square meter rate option.

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