Disclaimer: This article is purely for informational purposes, where possible always seek professional advice before making a finance or tax decision that affects your business.

If you run a business from your home—whether you use part of it as an office, provide services from your in-home studio, or live in the same building as your public-facing business—you might well owe both council tax and business rates.

The rules surrounding who owes what type of tax can differ from business to business and premises to premises. With our handy, easy-to-follow guide to business rates and council tax for ‘home-based businesses’, we’ll help you work out exactly what you owe, and how to handle the accounting.

Exploring council tax: what it is and how it works

Council tax is exactly what it sounds like: a tax imposed by your local council. Every council district in the UK, across England, Scotland and Wales, is authorised by the UK government to collect tax from residential homes—otherwise known as domestic properties. Council tax is designed to bolster council budgets and pay in part for council services like rubbish collection, street cleaning, schools, youth services, road maintenance, etc. Separate rules apply in Northern Ireland

Pretty much everyone in the UK has to pay council tax by law, though with some exemptions. You do not, for example, have to pay council tax if all occupants are under 18 years old, if the property is exclusively used to accommodate students, or if the property is condemned or empty for a variety of reasons.

For business owners operating out of a residential property, it is worth noting that you will, unless exempted under UK law, always have to pay council tax. The question is, will you have to pay business rates on top of this?

Exploring business rates: what they are and how they work

Business rates are another type of local tax, targeted at non-domestic properties—that is, properties used for commercial or business purposes (like a shop, factory, gym, office or holiday home).

The ‘rate’ in Business Rates refers to a ‘multiplier’, or ‘pence in the pound’ value, which is applied to the rateable value of individual non-domestic properties. A property’s ‘rateable value’ is an estimation of its open-market rental value on a given date.

Your local council should send you a business rates bill each spring for the year ahead, but for home-based businesses, you may have to inform VOA to avoid any nasty surprises from the taxman further down the line…

Council tax and business rates for residential businesses

So, we’ve established that whether you’re working from home or from an office, you’ll most likely have to pay council tax to your local council. But the question remains, do businesses pay council tax as well?

The answer is not always straightforward.

Essentially, no: most businesses will not have to pay council tax, but will pay business rates instead. Where things get tricky is for those of us running a business out of our own home—in other words, tax obligations become more confusing when your business and home overlap.

A checklist for exemption from business rates for home-based businesses

The good news is that most home-based businesses and business owners will not have to pay business rates. This generalisation is based on the notion that most home-based business owners are only using a small portion of their home to conduct business (for example, using one room in the house as an office, some of the time).

Below is a checklist for small business practices, which will typically not trigger a business rate bill on top of your domestic council tax.

• Using only a small part of your home for business (such as one room as an office for part of the day).
• Not using your home to sell goods or services to customers who visit the home (this does not apply to selling goods or services online, or by post).
• Not employing other people to work from your home.
• Not renovating your home for business purposes (e.g., installing a workshop in your garage or turning your living room into a hair salon).

Knowing when to pay business rates as a work-from-home business

Whilst most minor home-based businesses are not expected to pay both council tax and business rates, some domestic businesses are. It’s important to know which camp your business falls into so that you pay the council exactly what they’re due, and don’t skip out on a tax bill.

Below is a list of the types of business practices which typically will trigger a business rates bill on top of your council tax, for businesses conducted at home.

• Your property is part-domestic, part-business, such as living above or behind your shop, pub, offices, etc.
• You sell goods or services to visiting customers (such as running a massage parlour or beauty salon from your home, or providing car repairs from your garage).
• You have employees who work with you from your home.
• You’ve made alterations/renovations/conversions to your home for business-related purposes.

How to calculate business rates and council tax as a home-based business

Whilst most small home-based businesses usually only have to pay council tax, that doesn’t mean you can afford to ignore business rates completely. Depending on the nature of your business and how successful it becomes, you may soon stray into territory which makes you liable for business rates on top of your monthly council tax bill.

To avoid triggering fines from, or even overpaying tax in the first place, we highly recommend that you seek the guidance of a business tax professional. As your business grows, the benefit of having an accountant on hand grows with it.