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With a large percentage of Kiwis working from home, home-based businesses make up a sizeable portion of businesses in New Zealand. Choosing your home as a location for your business allows you to lower the costs of your operations and enjoy a more convenient work-life balance. This is often appealing to freelance writers, virtual assistants, social media consultants and graphic designers. Before you start your home-based small business, it is a good idea to understand the basic legal requirements that apply to your situation. Some key things to consider are:

  • complying with local council regulations; 
  • employment and tax obligations; and 
  • obtaining appropriate commercial insurance cover.

Becoming your own boss may sound appealing, but you also need to consider how to manage challenges like:

  • solving difficult problems on your own (or knowing where to find support);
  • gaining industry experience; and 
  • gaining technical knowledge to grow your business.

This article will discuss the various considerations of starting a small home-based business in New Zealand, along with the legal and tax implications, and how to access free resources available to you.

Before You Start

From defining your value proposition to sorting out your finances, when you start a small business from home, it is best to have a plan. This will help you while you manage multiple issues at once.

You should create a strong business plan that outlines:

  • your target market and competition;
  • how your home location is beneficial to your business;
  • whether you create a healthy work-home balance;
  • your point of differentiation and how you will deliver on it;
  • how you will structure your business
  • whether there any council regulations that prevent the operations of the business;
  • what the legal risks are;
  • whether you will have a team behind you; and 
  • how you will finance your business.

Tip: You should keep your business plan as a living document to help you remain competitive and flexible as you adapt and respond to the changes in the market.

In this article, we explain how to start a small business in New Zealand. It includes a checklist of essential things that all businesses need to do when they start.  

Some of the disadvantages of working from home include feeling isolated and not knowing how to find support when you need to tackle difficult questions. In New Zealand, there are plenty of free resources available to entrepreneurs to help them start or grow their business. These include:

Talk to your local Regional Business Partner Network about how you can get access. Networking is an excellent way of:

  • staying current with trends in your industry;
  • getting invited to important events; and
  • developing strong relationships with your clients.

You should also join business associations and subscribe to the business publications that relate to your industry. You can find them on LinkedIn or New Zealand government websites (NZ Business, Immigration) and non-for-profit websites (CNZBA).

Employment Considerations for Your Home-Based Small Business

Employment Agreements

Your employment agreement is a legal document that sets out the terms of your working relationship with your employees. When you draft an employment agreement, you need to cover certain rights and obligations for both parties. This will protect the interest of your business and ensure you meet your legal obligations. We discuss when to use each method in this article. 

Health and Safety 

When you run a business from home that employs staff, it is your responsibility as the employer to work with your team to implement procedures that minimise any work-related health and safety risks in your home or theirs. If you need to become familiar with health and safety rules in New Zealand, take a look at this article. 

Tax Considerations for Your Home-Based Small Business

As we explain in this article, when you start a business in New Zealand, no matter where from, you have some essential tax responsibilities. But there are also advantages to using your home as your office or workshop. You can claim a portion of your home expenses (based on the area of your home that you use for business), such as:

  • rates;
  • insurance;
  • power;
  • telephone; and 
  • rent or mortgage interest.

To determine how much you can claim, you can use either the:

  • percentage of floor area; or 
  • square meter rate option. 

We discuss the pros and cons of each method in this article. 

There are specific rules for claiming your expenses. These include that you:

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

Insurance Considerations for Your Home-Based Small Business

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 essential types, including:

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

For example, when you work as a contractor, 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.

If you provide consulting or design services to your clients, you may also want to consider professional indemnity insurance to protect you when things go wrong. For example, when you accidentally omit something while providing advice to a client.

Different businesses have different risks, and some are not obvious, which leaves many small businesses under-insured. Therefore, your commercial insurance coverage should be tailored to your business.

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 can help you get appropriate coverage and potentially save you on insurance costs by advising you on the most competitive providers and policies.

Tip: 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 lower your levies by adjusting what percentage of your income you want coverage for.

Licenses and Local Regulations for Your Home-Based Small Business

When you run a home-based small business, your commercial activities can affect the environment, culture, heritage and people. For example, you may need to ask for permission to use energy or land for parking purposes. Depending on your residential address, you may be restricted by: 

  • 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 consent for all work that affects the structure of a building); and
  • industry-specific licenses, for example: 
    • food businesses require registration, verification and food grades;
    • health and beauty and animal boarding businesses need a health protection license; and
    • childcare and bed and breakfast businesses may require a resource consent. 

You can talk to your local council planner about zoning or check if you need a licence to operate. These meetings are generally free, and you can meet with them in person or over the phone.

Key Takeaways

From local regulations to getting appropriate insurance coverage, there are several key considerations when starting a small home-based business in New Zealand. These include: 

  • creating a strong business plan to help you define your value proposition and evaluate the viability of your business idea;
  • when employing staff, it is your responsibility to design procedures to ensure that they can manage their health and safety when working from your or their home;
  • claiming a portion of your household expenses to reduce your tax liability;
  • tailoring your home-based business insurance to your needs; and
  • speaking to your local council about which regulations may apply to your home-based business.

If you need help with the legalities of starting your home business, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

FAQs

Can you run a small business from home?

As long as you comply with your local council regulations such as zoning and signage, you can set up and run your business from home. It is best to speak with your local council about which regulations may apply to your home-based business.

Can a sole trader employ staff NZ?

As long as you register as an employer with Inland Revenue, you can hire staff as a sole trader. You will need to meet certain employer obligations, such as deducting PAYE, KiwiSaver and Student Loan from your employees’ earnings, and file payroll information with IRD every time you pay your employees.

Is my home zoned for commercial use?

Your local council uses zones to manage how different land areas are used, developed or protected. Your business activities will determine whether you can run your business from a commercial or residential zone. It is best to speak to your local council about this.

Can I claim my home Internet as a business expense?

If you share your home broadband plan with your business, you can deduct a portion of this expense from your tax liability at the end of the year. You can decide how to apportion your internet expense for business purposes, but it needs to give a fair and reasonable result.

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