Take the right steps to make work liberating

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The Independent Online
Technology is wonderful. It has opened up a whole range of opportunities for people who want to work from home - telecommuting for their employer, as a freelance contractor, or by starting their own business.

The benefits - time management, quality of life and freedom to be based where you choose - are obvious. But setting up an office at home demands more organisation than buying a desk and getting a letterhead printed. Estate agent Knight Frank estimates that the cost of setting up an office at home is around pounds 5,000.

What issues do you need to consider? The practicalities - space, equipment, childcare, separate phone lines - are one aspect. But don't overlook the possible legal and financial implications, from insurance and bank accounts to business rates and planning permission.

First, draw up a business plan outlining what you're going to do, any unique selling points, and projected earnings and expenses for the first year or two. Banks will want to see a business plan if you want to borrow money. David Driver, a London-based chartered accountant who specialises in business development, says: "You should have a clear sense of what you're aiming for and how you're going to get there."

Mr Driver recommends a separate business account to your personal account, which makes it easier to keep track of cash flow, as well as any bank charges and interest for tax purposes. The main high street banks now have dedicated small business services offering 12 to 18 months' free banking, as well as advice on considerations such as insurance and tax.

You need to inform your mortgage lender if you are intending to use part of your home as an office. A Halifax spokesman says that a simple desk-based business is unlikely to affect the terms of your mortgage. "But we might review it if you were planning to convert the front of your house into a shop, for instance."

If you don't own your home, check the lease. Robert Orr-Ewing, head of letting at Knight Frank, says that although a residential lease "invariably stipulates it's to be used only as a private dwelling, there's rarely a problem if you are using a room, effectively as a study".

Similarly, planning permission is not usually an issue, as long as the business does not impinge on neighbours or materially alter the character or use of the house.

Difficulties can arise when employees are involved, signs go up and the business starts to become obvious. Mr Orr-Ewing cites the example of a flat rented in Knightsbridge, from which a palmistry business was run: "It ended up with queues of clients outside on the pavement, and the neighbouring businesses didn't like it. In the end the tenant had to be removed."

The criteria for business rates are similar to those for planning permission; they are unlikely to affect you if you're operating from home on a small scale.

It is important to tell your household insurer that you are using your premises for business purposes - otherwise you run the risk of invalidating your existing policy. Some will be able to provide extended cover to include your gear. First Direct Insurance, for instance, can provide a business equipment extension for up to pounds 5,000, plus cover for the occasional business visitor.

But First Direct emphasises that you may need other forms of protection against a wide range of occurrences such as mechanical breakdown, professional indemnity or loss of earnings.

And if you take on an employee you should get extra cover for employer's liability.

Certain firms, including Norwich Union, Cornhill Insurance and Homeworkers Insurance Services, offer special home office insurance, as do banks such as Royal Bank of Scotland, Lloyds and Midland.

If you are going to be self-employed, the Inland Revenue and the DSS also need to know. This can be done using form CWF1, available from the Contributions Agency or your local social security office.

Norwich Union, 0800 888222; Cornhill, 01483 568161; Homeworkers, 0800 387168; First Direct, 0800 242424.