Home-working freelancers win business rates reprieve

A case brought by one of the Revenue's own employees, appears to have reprieved many freelancers who work from home and were being threatened by the prospect of having to pay business property tax as well as Council Tax.

The case involved Eileen Tully, a Revenue employee, who started working from home following a disabling back injury. In recent years the Revenue have started to claim that where office facilities are provided at home then there should be a business rates charge on that proportion of the home used for the business. This was the case even where the business activity was minimal - for example just a fax and a computer.

Mrs Tully was supported in her case by her union, the Public and Commercial Services Union. In her case she had a desk, computer, printer and storage cabinet. The room was also used for domestic activities such as ironing.

The case was heard at the Lands Tribunal which presides over rating cases. The judge noted that there must be many thousands of homes where people do all or part of their work "without any outward indication that someone is working in the property". The judge concluded that a home should only be re-rated if the accommodation loses its domestic character and where employees visit the premises.

This is being hailed as a significant victory for the millions of workers and freelancers who work from home or have office facilities at home. Certainly the reference to the 'domestic character' of the property appears to cover the vast majority of home office situations.

However, in the absence of the full written decision, I am still a little concerned that the judge's reference to 'employees visiting the premises' might still be used to distinguish the Tully case from the situation where many real freelancers may find themselves having meetings with employees or clients at their home office.

Clearly under IR35 it is beneficial for a freelancer to do as much work as possible from home and to have office facilities that they use for client work and business administration. Often they will hold business meetings at home – meeting with their spouse or partner, who is frequently an employee of the business, or occasionally meeting with clients. I suspect that a cynical Revenue inspector who loses on an IR35 decision might still see whether his Valuation office colleagues could make a case for business property tax, especially if the provision of office facilities has featured large in the freelancer's case.

Freelancers also need to remember that they may need to check with their insurance company to ensure that the business activities they conduct from home do not affect their home insurance policy and, if business activities expand significantly, there might also be planning issues to do with change of use of part of the property.