An introduction to working from home

This article by Andrew Bibby, in a slightly different form, was first published in The Observer, 1999

It's surprising what you can get up to at home. Get the computer and the phone in place and you can argue with the boss, chat to your colleagues, keep the customers contented (whether in Clacton or California), and even turn coffee breaks into an opportunity for a spot of weeding in the garden.

Home is gradually becoming the workplace for a wide range of occupations: software designers, translators, architects and structural engineers, graphic designers, writers, editors, consultants, accountants, charity fundraisers, not to mention anyone who has ever had to finish a report by 9am next day and can't get the bloody office phone to stop ringing.

Telephone technology means increasingly that you can never be sure that the business call you're making isn't actually being rediverted to somebody's home. To give an actual example, motorists stranded on the hard shoulder who ring up the AA may find themselves put through to Mrs Carol Stokes in her spare bedroom in Wakefield, or to one of the other thirty or so home-based call handlers currently employed by the organisation. (This arrangement seems to work so well that the AA is about to close its Leeds call centre, and increase its home-based team to 150.)

Alan Denbigh, executive director of the telework association TCA, believes there may be much more development of these 'virtual' call centres. He points too to recent initiatives by large corporates like BT and Lloyds TSB designed to encourage more flexible forms of working, including home- working. "The development of e-commerce and the Internet has got to challenge organisational structures," he says.

Nevertheless, everything is not quite as was once predicted. Go back a few years, and the papers delighted in preaching of the forthcoming telework revolution. The idea, you may recall, was that instead of commuting in on Connex South Central you could stay at home and telecommute instead. This idea tended to be extended, so that the house itself came to be relocated from somewhere boringly mundane (Acacia Avenue, NW) to somewhere altogether more romantic (up beside a salmon-stocked Scottish loch).

It's clear now that most people are home-working from where they happen presently to live. In other words, forget thoughts of rural idylls: don't think Orkney, think Orpington instead.

It's also true that the numbers involved are still small. According to the Labour Force Survey, there were 256,000 more-or-less full time teleworkers last year. Using a wider definition, the number increases to about 1.1m (though this includes numbers of plasterers, joiners and glazers engaged in decidedly low-tech occupations who work from a home base).

Alan Denbigh is nevertheless upbeat: "We have seen a 13% increase in the number of teleworkers between 1997 and 1998, which I'd say is quite a substantial growth, and I'd expect the 1999 figures will show a similar increase. Almost 5% of the working population are teleworking," he says.

As a home-based worker himself (the TCA is run from an office in a large wooden chalet in his back garden in Gloucestershire), he is well qualified to point out the benefits: more opportunity to achieve a better balance between home and work life, for example. He also points out the financial advantages. "You can do more with your money. You spend less on getting to and from work, as well as saving on things like work clothes and lunches."

The home-worker's life is not entirely financial plain-sailing, however. There are a range of tax and technical issues which potentially can trip up the unwary (see below). Problems can crop up from the most unlikely direction: for example, the TCA recently found itself battling with one of the electricity supply companies who had unilaterally decided to change a home-worker's tariff from residential to commercial.

"The most obvious problem is the business rates issue, which is still something of a grey area," Alan Denbigh says. "We've had one or two people who've had problems. It's likely to be resolved by cases, and there simply haven't been any yet."

The TCA also campaigns for a more enlightened approach by the Inland Revenue. "The tax system doesn't impede teleworking, but there could be more advantages offered. The government could use teleworking to solve some of its transport problems, by reducing the number of journeys people make. There could be a telework tax concession - an automatic tax-free allowance for employees who work from home," he says.

In one respect the government may be listening. This year's Budget conceded that computers provided by employers to their staff for use at home will no longer be treated as a taxable perk. The exemption covers computer equipment up to £2000, and applies provided businesses do not only restrict equipment only to directors and senior staff. The move is modelled on a similar concession in Denmark, where analysts say that the rapid growth in home PCs, and in households with Internet access, has followed as a direct consequence of the tax break.

Understanding the technicalities

- Insurance

Given that most burglaries are committed during the day, you'd think that insurers would be delighted to hear that you will be working from home.

Not so: some insurance companies will effectively penalise you by excluding your own work-related equipment from household contents cover. Others will extend cover to business items, but only up to a limited value - typically, a few thousand pounds. Add up the cost of a PC or laptop, fax machine, printer and furniture, and you could find yourself over the threshold.

In any case, you need to inform your insurer of what you are doing. If you find you do not have adequate cover, one option is to consider one of the policies designed specifically for home workers. The market leader is Tolson Messenger (0800-374246).

If you are an employee, your employer should take responsibility for insuring their own equipment. But best check first.

- Planning permission

In general, most home workers shouldn't need to worry about planning permission. The rules say that permission is not required provided your work use 'does not change the overall character of the property's use as a single dwelling'.

It's likely to be a different story if your home work involves, for example, repairing wrecked cars on the front lawn or manufacturing large quantities of spicy chutneys. Planning authorities get interested if your work involves a substantial increase in traffic or in people calling, if it disturbs neighbours or if it involves 'activities unusual in a residential area'. Think again about that neon sign.

- Business rates

If you have an area of your home dedicated exclusively to work, you could potentially face a liability for business rates, on top of your ordinary council tax bill. The government says that where business use is subsidiary to domestic use, rates will probably not be levied. In practice, you'd be unlucky to find yourself under the scrutiny of the valuation officer, and rather foolish to voluntarily raise the question yourself.

- Capital Gains tax

Whilst any gains in the value of the home where you live are normally exempt from capital gains tax, the situation changes if you use part of your home exclusively for work purposes. In this case, gains will be apportioned according to the proportion of business to home use. The annual CGT exemption threshold (currently £7,100) makes this an issue only for the lucky few.

If you do decide to apportion some of your housing costs as work expenses, you may run a greater risk of being levied for business rates.

- Travel expenses

Normally as an employee you can't set against tax the cost of travelling between your home and the place where you work. Where your home becomes your workplace, the situation can change. The Revenue distinguishes between people who work from home because it is convenient (no tax perks here) and those where 'there is an objective requirement of an employee's duties to carry out substantial duties at the home address'. In the latter case, the cost of journeys to other workplaces is eligible for tax relief. But this is a complicated area of tax; IR booklet 490 gives full details.

- Home expenses

Working at home costs money: direct expenses such as telephone charges, less immediately obvious items such as extra heating and lighting expenses, and long-term capital costs which come from the fact that carpets and furniture wear out quicker. There is also what economists describe as an opportunity cost, in that the space you are using at home for work can no longer be used for other purposes.

It's sensible to install a separate work telephone line for home working, and most employers automatically meet this cost for their employees. Some, but by no means all, employers also contribute towards the other costs incurred, typically through a regular lump-sum payment. However, this sort of payment can be taxable as a perk, if it cannot be justified as legitimate. The test for what expenses can be reimbursed is a tough one for employees: expenses must be incurred 'wholly, exclusively and necessarily' for work purposes. Sensible employers negotiate any home expense payments with their tax office first.

For the self-employed, the test is less rigorous. Expenses incurred 'wholly and exclusively' for work can be set against tax. Items such as electricity and gas bills can be apportioned between home and work use; this is an area where an accountant can give useful advice.

- Mortgages and landlords

According to the Council of Mortgage Lenders, you should let your mortgage company know that you are working from home. In practice, most people fail to do so, perhaps concerned that their mortgage will rapidly be changed to a higher-rate commercial loan. The CML says that, whilst conceivable, this is unlikely.

The TCA has reported a few cases where assiduous lenders have not allowed home-working borrowers to get tax relief automatically through the Miras scheme, requiring them to obtain tax relief from their tax office instead. This problem will disappear next year, when mortgage tax relief is abolished.

If you are renting accommodation, your landlord may expect to know about, and approve, your plans for working from home.

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