In modern days, home is where the work is
Thousands of commuters, frustrated by traffic jams, wearied of the daily struggle to catch a train on time, dream of operating from home, says Helen Monks. This takes careful planning but it is not complicated
Saturday 29 March 2003
EVERY day, thousands of workers sitting in traffic jams, fighting for seats on trains, or wrestling with London's congestion charge dream about working from home. But whether you make the break by opting for self-employment, or your boss allows you to work from home, there will be bigger challenges than resisting the twin charms of your sofa and daytime television.
Every day, thousands of workers sitting in traffic jams, fighting for seats on trains, or wrestling with London's congestion charge dream about working from home. But whether you make the break by opting for self-employment, or your boss allows you to work from home, there will be bigger challenges than resisting the twin charms of your sofa and daytime television.
For most, astute financial planning may be the only way to make working from home worthwhile. A study by the Henley Centre for Forecasting suggested the number of homeworkers will increase from three million in 1995 to more than 10 million in the next decade, so more of us will be weighing the financial implications of homeworking.
"It is all very well thinking how great it would be to work at home or for yourself, but it is a serious financial undertaking that demands a full review of your finances way ahead of going it alone," says David Bitner, of the independent financial adviser (IFA) The Marketplace, part of Bradford & Bingley.
Before going self-employed, you should build a contingency fund for potential lean months. If you expect to need more spending power on credit cards, fix this before you leave your job, because waiting until you really need credit when you are self-employed means you may not get the most competitive rates. You will often be deemed at higher risk of defaulting on repayments, regardless of your credit history.
And you will have to provide your own holiday, sick pay, pension and benefits. You may want to work out if absorbing these extra costs is justified by the amount of time and money you are likely to save by not commuting before you draft that resignation letter.
If you decide to remain as an employee, your mortgage ought not to be affected. But if you go self-employed, you may be obliged to tell your lender, although in reality, few self-employed borrowers do.
But if you want to move to a live/work unit – one recognised by the local council as business premises, but also as your residence – then getting a mortgage may take more time than getting a standard residential home loan. Fewer lenders will be willing to lend on a property that might be more difficult to resell because of its modifications as a place of business.
There are special mortgages that cater for these customers. Mr Bitner says home/work mortgages are much the same as ordinary products, but the lender will specify the maximum proportion of your property allowed to be used for business purposes. For example, Nationwide permits up to 60 per cent of the property to be used for work purposes, available on up to 75 per cent loan to valuation (LTV).
Getting a mortgage if you are self-employed used to mean paying over the odds rates for self-certification loans that do not require pay-slips as proof you can meet repayments. These days, the increasing number of self-employed workers has generated enough competition to drive down rates, though you may have to pay a higher one if you have less than a 15 per cent deposit.
Setting up a work-space in your home will require you to either increase the cover provided by your standard home and contents insurance, or buy new policy to cover your business and residential property.
Norwich Union, the UK's largest insurer, offers both options to policyholders. The Home Plus working-from-home extension covers up to £15,000 worth of office equipment, supplies and furnishings in the home including your personal computer, fax machine, laptop and mobile phone.
The HomeWork product covers house as well as business contents. The maximum sum insured is £100,000, which includes loss of business books and computer system records up to £5,000, employees' and visitors' personal effects up to £200, loss of crossed cheques, credit company sales vouchers and Vat-purchase invoices up to £100,000. If you become self-employed you must tell the Inland Revenue within three months. The Revenue has a helpline (08459 154 515) and other services for the new self-employed.
Patrick Connolly, of the IFA Chartwell Investment Management, says: "Once you become self employed, it is vital to keep every receipt and bill from day one. This will make filing your self-assessment tax return far easier."
If you are thinking of making the move from office to living room, the accountant and business advisory firm PKF suggests you consider putting a bed in your office to resolve one of the potential tax headaches. Giving your office room a dual purpose, such as doubling up as a living room or second bedroom, will mean there are no restrictions in claiming back capital gains tax (CGT) when you move out.
PKF also says you should look into claiming back money on household bills and council tax for the part of your house you use as a business, but warns it may only be possible for individuals in business on their own, not for a director or employee of a limited company.
Peter Harrup, of PKF, says: "Working from home has immense attractions, such as removing the daily grind of commuting into work, fuel costs and parking charges. But if you're not fully informed of the financial implications and rules then you could be a loser. Contacting your local council and the Revenue, directly or though an adviser, will be crucial to making sure the sums add up."
'I CAN WORK HOW I WANT TO AND GET MORE DONE'
Bob Saunders, a 43-year-old furniture-maker, is paying £830 a month rent for a workshop in Bow, east London, and £700 rent for his flat in Highbury, north London.
He is moving to a live/work unit in London Fields in Hackney, east London, where one floor of his home will be a workshop.
With just one monthly mortgage repayment, he will make a considerable saving, but he also expects his quality of life and productivity to improve.
"There are financial issues that will be resolved by the move," he says. "But I'll also be saving an awful lot of time and aggravation. I'll be able to work the way I want to and probably get more done."
Mr Saunders had problems getting a mortgage and says some big lenders were unwilling to consider a live/work property.
But now The Marketplace is organising the loan and Mr Saunders expects to be making and restoring furniture at his own pace within months.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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