Running a business from a rented property

Remote and hybrid working have become well-established across many sectors, with a significant number of individuals now working from home either full-time or part-time.

In a private property, there are a number of steps anyone running a business from home must take, such as informing mortgage lenders and home insurance providers. However, for anyone in a rented property – and for landlords - the situation is more complex.

In this article, we look at the requirements for working from home or running a business from home from both perspectives – tenant and landlord. We also set out the expenses anyone working or running a business from home can claim against their income tax assessment.

Tenants working from home

In this situation, a tenant is not running their own business; they are simply using their home as a full-time or part-time office. The property should continue to be used primarily as a residence. There is no fixed percentage limit in legislation, but business use should remain ancillary to residential use and must not change the overall character of the property.

If you are a tenant working from home, you should check your tenancy agreement and notify your landlord where required, as many agreements restrict business use of the property. However, there may also be financial implications for your tenancy agreement. If you work from home full-time, your costs for heating, lighting and broadband use are likely to increase. If you pay those bills directly to the supplier, there is no complication. But, if your landlord includes those costs in the rental figure, you may have to renegotiate the rent.

Tenants running a business from home

Although some of the points about working from home apply, there are further legal and financial issues to consider.

As a tenant, you must notify your landlord and ask permission to run your business from home. Before legislation changed in 2015, this might have proved difficult as landlords were generally advised to refuse requests to establish home businesses. However, the Small Business and Employment Act 2015 (the Act) introduced the concept of “home business tenancies”, allowing certain low-impact businesses to be carried on at home with the landlord’s consent.

If a business meets the Act’s criteria as ‘a business of a kind that might reasonably be carried on at home’, the landlord may choose to grant consent, subject to the terms of the tenancy agreement and any applicable restrictions. Although the Act doesn’t specify the types of business that meet the criteria, these might include secretarial services, freelance writing or translation, accountancy or financial advisory services – generally service-related businesses. Self-employed plumbers, builders, hairdressers and beauticians, window cleaners and other trades might use rented properties as their office for doing estimates or accounts.

There are certain characteristics that might lead a landlord to reasonably refuse your request. The business should not alter the appearance of the property or involve large numbers of people visiting. And, it should not be noisy or cause disruption to the neighbours. That would probably rule out catering businesses that serve customers on the premises, any business using heavy machinery or providing noisy repair services on the premises.

If the landlord gives permission to run the business from home, you may have to renegotiate utility and other costs if they are included in your rent, and the landlord may have to change the tenancy agreement. You should consider whether business insurance is required, particularly if clients, equipment, or stock are involved and you should also ask your local council if you are liable for business rates as well as council tax.

It’s important to remember that the landlord’s permission only applies to one type of business – the one that you requested. If the nature of the business changes, further consent from the landlord may be required.

Landlords allowing business from home

If you are satisfied that your tenant’s proposed business meets the criteria set out in the Act and the other general considerations of noise and appearance, you should confirm your agreement to the request in writing and set out your requirements for the business.

Ask your tenant to confirm that they are only running the business they described in their request, that they have appropriate business insurance and that they will take measures to prevent any damage to the property caused by the business.

If the tenancy agreement includes a clause on frequency of access to inspect the property, you may wish to change the frequency.

Before making your decision, you should take a number of factors into consideration. You should check whether your mortgage terms restrict the property to residential use only, as permitting business use may require lender consent. If it does, you may be in breach of the mortgage agreement and you would either have to refuse the request or discuss the matter with your lender. You should also check with your local council if the change of use complies with local planning and permitted use requirements. Certain types of ‘heavier’ businesses may breach local planning or permitted use requirements. If the business involves customers or suppliers visiting the property, you should consider potential liability risks, including occupiers’ liability where visitors attend the property in connection with the business.

To help make your decision, you should ask your tenant to provide full details of the business, including:

• Nature of the business

• Proportion of rented space required for the business

• Additional requirements for water, electricity, broadband and other services

• Details of business insurance

• Equipment and inventory used in the business

• Inventory storage requirements

• Normal business hours

• Number of customers visiting the property and parking arrangements for customers

• Nature and frequency of deliveries to the business

Once you have made your decision, you should issue a new tenancy agreement updating the original document or issue an additional agreement to cover business use of the property.

As the situation can be complicated, it may be useful to ask a solicitor to draw up or review the agreement, to ensure that it covers any risks or liabilities and protects the interests of both parties.

Allowable expenses for working or running a business from home

If you are using your home for work or running a business, you will likely incur additional costs and Employees can generally only claim limited home working expenses where they are required to work from home and are not reimbursed by their employer.

HMRC states that any expenses claimed must be ‘wholly and exclusively’ for the purposes of the business (for self-employed individuals). However, it may be that certain expenses have both a private and business purpose – a bill for heating and lighting, for example. In that case you have to apportion the costs between private and business use.

For self-employed individuals, allowable home-related expenses may include a proportion of:

• Rent or mortgage interest

• Council tax

• Utility costs for lighting, heating and power

• Telephone line rental, call charges, mobile phone costs and broadband charges

• Home and business insurance

• Property repairs relating to rooms used for business

• Cleaning and decorating rooms used for business

• Certain costs of adapting space for business use (subject to HMRC rules on capital vs revenue expenditure)

• Capital allowances for business equipment or furniture

• Business equipment repairs

You should retain invoices and receipts for any expenses you are claiming, together with an explanation of any items that are apportioned between business and private use. For example, if you use one room out of five wholly for work or business, you could claim an appropriate proportion of the room-related expenses, based on usage.

Self-employed individuals may also choose a simplified method of claiming where home use is relatively limited. If you are self-employed and work from home at least 25 hours per month, you may use HMRC’s ‘simplified expenses’, which is a flat monthly rate set by HMRC as an alternative to calculating actual costs.

However, that flat rate does not include telephone or broadband expenses. You can claim the business proportion of these bills by working out the actual costs.

Before opting for simplified expenses, you should compare the flat rate with your actual allowable costs using this government calculator.

Support from Accounts and Legal

This is a brief outline of the guidelines covering working from home or running a business in a rented property as it applies to tenants and landlords. If you would like professional advice on any aspect of these guidelines, our team of experienced small business accountants and solicitors will be glad to help.

To find out more, please contact us on 0207 043 4000 or info@accountsandlegal.co.uk. You can also get a quick, no-obligation online accountancy quote here.

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