Relax with a good book-keeper

If you work from home, you must stick to the rules - legally and financially. Sharon Maxwell-Magnus continues her series with some technical tips

Working from home has a variety of financial and legal implications - although much depends on whether you are employed or self-employed.

If you are employed by a company, it is worth bearing the following factors in mind:

Who will pay for any office equipment that you use, for telephone bills, insurance and other expenses? Will you be insured by them when you are working at home? Who is responsible for the health and safety aspects of your home office?

If you are treated exactly as an office employee in respect of terms and conditions, the legal and financial side of the enterprise should be largely your employer's concern - although it is as important to be aware of company targets and concerns as anyone in the office. However, if you are self-employed the picture is very different.

Legally, a business needs to be either a sole trader, partnership, limited company or co-operative. The simplest form of set-up is the sole trader. If you use your own name for the company, there should be no problems. However, if you intend to become a partnership or limited company, it may be a good idea to get advice from a solicitor.

The self-employed are responsible for their own tax and National Insurance affairs. If you want to adopt the DIY approach, it is best to talk to your local Inland Revenue office and contributions agency, who have a series of helpful guides. If your business is very small, you may well be able to keep the books yourself. However, it is important for them to be up-to-date and comprehensible. If you can't add up, are disorganised or hate figures, employing a book-keeper or accountant could be a smart move! The new self-assessment formula for small businesses means it is even more vital to keep track of receipts, invoices, payments, etc. Remember, too, that you must register for VAT if your turnover is pounds 45,000 or more.

Many businesses require a licence, registration or inspection. To check that your business doesn't fall foul of local requirements, tell your local authority what you intend to do and they will put you in touch with the right department: social services, for instance, if you want to run a nursery, the environmental health officer if you want to run a catering business. If you are planning to sell or make goods, talk to the local trading standards officer about legal requirements.

Finance ain't what it used to be. While the banks have always been the major source of loans to businesses, grants used to be more plentiful than they are now, when they are being rapidly replaced by low-interest loans. Certain areas such as crafts, the arts and areas of high deprivation are more generously endowed than others.

Young people starting in business may also qualify for low-interest loans and advice from organisations such as The Prince's Youth Business Trust. Your local Business-link or TEC should have details of low-cost local finance and your reference library may have directories of grant-making trusts.

Don't invest what you can't afford to lose. Financing a new business out of savings or selling possessions is a safer bet than putting your home up for security. Finance from relatives and friends can also be a good way of starting up, provided they understand what returns they can expect for their investments. Do they regard the money given to you as a low-interest loan, or a charitable donation, or are they expecting to make big bucks from your business acumen? Clarity at the outset averts disagreements later.

If you do plan to take out a bank loan, shop around for the best deal. You must have a viable business plan or the banks will reject you.

The union MSF publishes guidelines for tele and homeworkers. It is based at 33 Moreland Street, London EC1 (0171 505 3000). The Prince's Youth Business Trust is at 18 Park Square East, London NW1 4LH (0171 543 1234). The Crafts Council is at 44a Pentonville Road, London N1 9BY (0171 278 7700).

How Joel avoided the traps

Joel Brizman, 45, is a computer and management consultant working from home in Herefordshire. He thought hard before deciding to take the plunge to become self-employed. "I checked my financial position, cut down a bit and then set myself a minimum earning target.

"It's useful to do that because if you achieve it - as I did - it gives you confidence. If you set a target too high, you become desperate and employers scent that."

Joel was determined to avoid borrowing from the bank. "I wanted to keep overheads low. Working from home was part of that."

Joel did the books himself at first but eventually decided that it was too time-consuming. He no longer does day-to-day accounts, but still likes to retain an overview.

"It's important strategically to look at the trends in your earning patterns, what you owe when, who owes you, the cash flow. If you don't keep tight hold of that, it's easy to lose your way."

Joel believes that having an MBA saved him from making many financial mistakes. "I think a lot of people have problems with cash flow, marketing, planning. I knew the pitfalls and so could avoid them. This lifestyle suits me because it's flexible and although the buck stops with you, you reap all the rewards as well."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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