Everybody knows that there is no law stating when a person should or should not work from home, however, it is an important decision you might consider. Net Lawman has provided some specific guidance on the issues you should consider:
Contents:
Why work from home?
Employed or self employed?
Getting paid - the work from home contract;
Tax and Overheads;
The ten rules of work from home (alone or with a partner);
An agenda for starters.
Why work from home?
Freedom! Freedom! Freedom!
Get a life! Fit work around life, not life around work!
Get away from the alarm clock, the commuter run, fixed lunch hours, reporting to your boss!
Instead enjoy the 'work from home' life where you get to your office by coming down stairs!
(Actually, you might also consider the worry of where the next job will come from; whether you will be paid at all, let alone on time, what will you do if your work from home project fails, leaving you with lost seniority? How you will afford the "infrastructure" of an office; who will get your letters to the post; what your life partner will say about your strange new work hours; and how, oh how do you avoid forgetting to pick up the children?)
The point we make is that a decision to work from home should not be taken lightly. If the alternative is no money at all, then the decision is simple. If however, if you have another job, then the issues are far more complicated.
If you do not know where you are going, it is unlikely that you will arrive at an attractive destination. Make sure you have a comprehensive plan, and a back-up plan. If you know you want to go to Birmingham, you would not just hop on the first train in the station or get in your car and start driving. You would decide not only on your destination, but also on your route. The more complicated your journey, the more important becomes the route planning.
If your situation permits, you can drastically reduce the financial risks of self-employment by starting evenings and weekends. This is most likely to be practicable for services like accountancy or plumbing. We advise you to check your contract of employment carefully first. Certainly if it is drawn by Net Lawman it will prevent any competition! As an employee, you also have an unwritten automatic duty not to compete with your employer.
Employed or self employed?
Feature
Employed
Self-Employed / Work at Home
Regularity of pay
Yes
No, unless you can arrange contracts for regular payment over long period
Amount of pay
The going rate
Up to you and the market: probably far more, maybe not.
Training and education
Probably yes and free
Can you afford the time and cost?
Extend experience
Maybe
Maybe
Social intercourse
Usually yes
Usually less, but depends what you do
Mobility
The work dictates
You decide: stay at home or get out and see clients
Overtime
The employer dictates
You decide, but reckon on longer, not shorter hours.
Stress level
It could kill
Lower, as long as you can pay the bills
Level of responsibility
Depends on job
Depends on you
Fixed hours
Probably yes
Absolutely no
Pension
Probably yes
You decide, you pay
Tax*
Auto deducted
Paid a little later, and only after you have set all expenses against it.
Rules and regulations
You follow them
You make them
In UK tax law the basis of definition of expenses which may lawfully be set against gross income for tax purposes differs between employment and self-employment. As a result it is generally accepted that self-employment provides an environment in which less tax is paid.
Getting paid - the work from home contract
One of the biggest changes you will see in the change to self-employment is that every move you make will be “in business”. This applies whether you are taking a sub-contract to clear gardens in deceased estates at £5 an hour or charging £150 an hour for HR advice. The World will expect you to do things properly. Less happily, the World will also take every possible financial advantage of you.
You can help yourself as the rest of the gigantic army of self employed people do. The way to avoid all sorts of trouble is “put it in writing”.
Buying stationery
Send formal written order with price, delivery date and spec
Buying a new computer
Send formal written order with price,delivery date and spec
Ordering goods on the Internet
You have to take the, suppliers fixed terms! Read them!
Selling your services - Get a standard contract and have your, client agree to it!
Just blame “the lawyers” if you have to, ask for a signature face to face, but do get it signed.
Your standard contract can be a “terms and conditions” document or it can be in a form with terms negotiable. It may have no variables or it may leave 30 areas to agree each time. The most important thing is to use a contract; the second most important is to use your contract, not his!
Net Lawman has the largest selection of legal document templates for UK work from home and business start up on the Internet. The work from home document you most need is:
Standard terms and conditions, usually abbreviated to “t&c”, OR standard contract document OR consultancy contract. All of these form the same function - to regulate the relationship between you and your client or customer;
Use standard terms if your business method allows this. You insert what you like. Your client takes it or leaves it. If your client relationship is more sensitive, use a contract based on calling yourself a consultant or other title. Many of the terms will be the same, but your client may ask for changes in the detail;
Most of us rarely read other peoples terms and conditions. That is a mistake. But a bigger mistake is to fail to read and understand your own terms and conditions. They have to fit your business, not one in the State of Virginia or the Province of Ontario.
Net Lawman offers a simple contract suitable for work from home if you do not want to call yourself a consultant.You will find it here:
You may need a set of documents to set up a limited company or a limited liability partnership;
If you are looking to trade on the Internet, you will also need a privacy policy. The Net Lawman version also reminds you of your obligations under the data protection laws.
Of course, you may need e-commerce documents or employment documents.
We have them all. If you do not find what you need, we will draft a special for you.
Tax and Overheads
If you work from home, it is only proper that overheads are fairly split between private and business use and that the business element is charged against your taxable income.
If you operate as a self employed person, you should have no difficulty with the Inland Revenue provided your calculations are fully supported and realistic. If you operate through a limited company, you may have a problem. The Inland Revenue will treat the home-office expenses you claim as extra income of yours and tax you on it. These accords with the rules under “IR35" which are fully explained on this page. But there is a way to avoid this.
If you set up a license agreement by which you permit your company to enjoy certain specified facilities at your home address, you will be entitled to receive the license fee specified in the agreement. This agreement is income in your hands, but in this case, you are permitted to set against it the expenses in creating it, that is, the bills you have paid for the overheads.
Obviously, there is no point in creating taxable income, unless you have other shareholders in the company so it is sensible, so the license fee should be limited to the total of the proportionate overheads you charge to your company.
It is important to avoid permitting your company exclusive use of any particular room or space - or you may be charged to capital gains tax on that part when you sell your house.
It is useful to carefully measure every room and allocate between private and business use separately for each room.
The license agreement can be flexible enough to cover repayment for provision of ancillary services such as subsistence for company visitors.
Net Lawman provides a document “EN-PRle21”, but remembers
that you are well advised to clear your proposals with your inspector of taxes if you want a trouble free ride at the end of the year.
The ten rules of work from home (alone or with a partner)
1.Think it through - because this is so obvious when you think about it, you would expect everyone to do it;
2.Get your spouse or partner onside - you will never know how important this is unless you fail to do it!
3.Make sure all money is in place before you start;
4.Be prepared to make financial sacrifices at the start and to work ridiculously long hours;
5.Prepare business plan on a spreadsheet. Play with every possible scenario. When you have a final, final version, just go back and double your time scale. If it still looks do-able, it just might be!
6.Prepare a marketing plan on paper;
7.Put all contracts in writing;
8.Set up a proper work from home facility: office, caravan - whatever you need, but out of the way of the kids!
9.Whatever hours you work, fix some very specific and regular time off and holidays. Play well, sleep well, and eat well;
10. Don't miss the children growing up!
An agenda for starters
Here are some ideas and points for action
Re-calculate each month, how long you could last if the business never gets off the ground, or if sales are only half what you expect, or if a key client / customer stops buying;
Decide who, if anyone is to be included as a partner or director. Use that you can, but are slow to give away shares in anything - remember you are a ruthless entrepreneur now! Is the future to be starvation, bread or holidays in Acapulco?
If you are in HR, you will know not to take on employees. If you are not in HR, take my word for it. You will have enough to occupy yourself without wrestling with the 60 or so acts and sets of regulations with which an employer must comply;
If you do not need help now, you might soon. Where will that partner or employee work? Will they be "work from home" too, or is there room at your home? Outside the South East, a ballpark figure for setting up a small office for four people might be £5,000. It will cost £10,000 a year to run. Double that for London and South East. An alternative is to take a serviced office suite - very flexible, but usually expensive;
Decide on business structure - sole trade, partnership, or limited company. Net Lawman can give a lot of help here too. Look at our free advice notes on business start up. They cover many work from home areas;
If more than one of you is involved in management, decide precisely on areas of responsibility, method of communication, and matters for mutual agreement. Record this in a partnership agreement or a shareholders' agreement;
Fix firm but generous start date around which all arrangements will be made;
Assess telephony requirements and obtain quotations from suppliers;
Assess requirements for other services and obtain quotations from suppliers;
Assess requirement for office equipment and obtain quotations from suppliers;
Precisely, list products or raw materials and obtain quotations from suppliers. Check delivery arrangements, availability, and continuity;
Complete partnership agreement, or company documents as the case may be;
Register for VAT if turnover likely to be more than £55,000;
Write to banks for quotations;
Your bank and others may ask you for names of your accountants and solicitors. Appointing professional advisers for a long term is an old fashioned concept. Leave those boxes blank. All solicitors know that clients come and go. You can find a solicitor when you need one. The same goes for accountants. If you can find a friend to keep your books, or do it yourself with an accounts software package, you will not need more for quite some time;
Double-check your marketing proposals. No matter how simple your work from home business, you will find that the discipline of committing your ideas to screen will provoke all sorts of problems that had not previously occurred to you. Key areas are:
1.How exactly will your customers or clients discover you?
2.Have you been absolutely realistic in your assessment of the rate of conversion from "prospects" to "customers"?
3.Just suppose your plans were working, but more slowly than you expected. What is the real downside?
4.Who are your competitors and how will they react?
5.Can you afford to sell at lower cost?
6.Are you selling at high enough prices? (Most self employed people sell services too cheaply, that is at a price lower than they could easily achieve).
Good luck in all your endeavours!
If by chance you find some error of law or fact in any Net Lawman information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.
