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Winter 2003 Bulletin

WORKING AT HOME

A recent decision of the Lands Tribunal (the senior Court for hearing appeals against rating assessments) has clarified the rules for deciding whether business rates are chargeable when a householder uses a room for business purposes – for example, as a study, office or workroom. This is important because, over the last two or three years, the Valuation Office Agency (which assesses liabilities to Council Tax and business rates) has been claiming business rates from a widening range of people, both small business proprietors and ordinary employees, who work at home.

The story so far . . . . .

Until the recent case, the general approach was that business rates were payable unless the business use was de minimis – lawyers’ shorthand for ‘small enough to be ignored’. Unfortunately, how small was small enough was never defined, though it was generally thought that the main criteria were the number of hours the employee or trader worked at home, and whether or not a room was devoted to business use.

. . . . . and the latest development

However, the President of the Lands Tribunal decided that this was altogether the wrong approach. He held that both the number of hours worked, and whether a room was devoted to business use, were quite irrelevant. Simply working at home does not turn a house into business premises. What matters is whether the premises have been physically adapted for business use; whether equipment that would not normally be found in a private home is used; and whether there are a significant number of business visitors.

To take each of these three criteria in turn:

·               Business rates liability is likely to arise if a separate building has been erected for use as an office or workroom, or if an integral garage has been converted for such use. Liability may also arise if there is any sign or advertisement for the business that could be read by passers-by, even a small brass plate. By contrast, simply furnishing a spare bedroom for use as an office will not create a liability to business rates.

·               Using equipment not normally found in private homes may create a liability to business rates. However, the Lands Tribunal specifically ruled that personal computers, inkjet printers, etc, are commonly found in private homes and so their presence will not be relevant.

·               Business rates liability is likely to arise if anyone other than the householder and his immediate family works on the premises – for example, if a secretary or book-keeper (who is not a family member) is employed, even on a part-time basis. Liability will also arise if a significant number of customers, clients or patients are seen at home, or if there is a regular traffic of other business visitors.

The recent decision does not affect the statutory rule, that a garage with a floor area not exceeding 25 square metres is not subject to business rates, even if it is used to garage a van or other business vehicle. The special rules for ‘bed and breakfast’ accommodation are also unaffected by the Lands Tribunal ruling.