Working from home isn’t for everybody, but it is certainly appealing to many people. Results from the government’s recent Opinions and Lifestyle Survey (OPN) revealed that 32% of self-employed people had exclusively worked from home in the seven days before being surveyed.
The same study also showed that only one in four sole traders would choose hybrid working, with most preferring to work exclusively from home. With the many benefits that working from home (WFH) brings, it comes as no surprise that so many business owners opt to do so.
The advantages of being a WFH business owner include:
- Reduced overheads
- Tax benefits
- Control over where and when you work
- Better work-life balance
So, whether you’re thinking about setting up a side hustle to boost your income from home or maybe you’d like to swap your current employment for full-time financial freedom. Whatever the reason, here are some ideas for businesses you can set up from home and how to handle the formalities and legalities with HMRC.
What sort of businesses can I run from home?
Whether you’re planning to set up a side hustle or looking to take the leap into launching your own business, you may already have a clear idea of what you want to do. It might be the career you’ve been employed in for many years already or a specialist skill you’ve fine-tuned ready to freelance out.
If you don’t already have a clear idea of what you want to do and you just know you want to start a business from home, here are some popular examples:
- Virtual Assistant
- Recruiter
- Ecommerce business or online store (selling products online)
- Dropship business
- Content writer/copywriter
- Video editor
- Web/app designer
- Graphic designer
- Online tutor or in-person tutor
- Nail technician
- Hairdresser
- Dog walker
- Consulting services
- Professional services (e.g. accounting and bookkeeping)
However, this really is just the tip of the iceberg. With advancements in technology, more access to business support and resources, and remote working, opportunities for home businesses are more open and diverse than ever.
As with any kind of business, it’s about honing in on your skillset and then building a brand and an offering that will help you find your niche (your USP) and stand out in the market.
What makes a good home business idea?
In order for any business idea to be a good one, it needs to be well thought out and carefully considered. Setting up a business, especially if it involves leaving employment behind, isn’t a decision that should be rushed into or taken lightly.
It’s essential to thoroughly research your business idea to validate the need for what you’re offering. It’s crucial to know that there are customers out there who will want to pay for your product and service and it’s important to know how you’re going to set yourself apart from your competitors.
Validated your business idea? Great! Here are some other qualities that make a home business idea a good one:
- Low set-up costs: The lower your start-up costs, the less you’ll be out of pocket before you start turning a profit and the less risk your initial investment will be at.
- It doesn’t require anyone else: Ideally if you’re running your business from home, you want it to be something you can handle alone or with only the bare minimum of help. If you do employee staff, a remote working option might be worth considering to minimise costs.
- Little to no training is required: You want to hit the ground running and pick a skill or product you know you’ll be able to sell without having to invest time and money into training first. Or, if training is required, for it to be well worth the cost!
When you need to tell HMRC about your business
You’ll need to tell HMRC about your home or hobby business once you start earning more than the Trading Allowance, which is currently set at £1,000.
The Trading Allowance means you can earn up to £1,000 from self-employment or miscellaneous trading each tax year without telling HMRC or paying tax on those earnings. You’ll need to register your business and start paying tax once your income tips over that threshold.
To register for tax, you will need to choose a legal structure for your business as this will inform how you report your earnings and pay your taxes.
All structures come with their unique pros and cons, so it’s about finding the one that’s more suited to you and your business type, whether that’s Sole Trader, Limited Company or something else entirely.
Do you get tax relief if you work from home?
You’ll be glad to know that when you set up and run a business from your home, there’s tax relief available for using where you live for business-related activities. Known as allowable expenses, the costs are knocked off your income, and you’ll pay tax on the profits left over.
Typical allowable expenses if you run a business from your home can include:
- Electric, gas, heating
- Internet and telephone costs
- Gas and heating
- Maintenance and repairs
- Water usage if it is a substantial part of your operations- for example, if you’re a hairdresser
You can only claim tax relief on costs that are directly related to the running of your business, so you can’t claim all of your household bills – just the proportion related to your business activities.
Calculating your home business expenses
These are the two accepted methods for working out your home-working tax relief claim:
- Simplified expenses: Using HMRC’s flat rate to claim tax relief based on the number of hours you work from home each month.
- Cost method: Working out what the precise costs of working from home are, so you can claim these expenses more accurately.
Looking for more expert business support? Check out our accounting support hub for more help, or to ask a tax question.
