Do your homework

By JO THORNHILL
Updated: 19:00 EST, 21 January 2002

IF delays and crowded trains represent a familiar scenario, the thought of working from home will surely have crossed your mind. Around 315,000 people work from home full-time in London and the South-East, says the Office of National Statistics, while nationwide the number who do so one or two days a week is closer to five million.

But before you bin your rail card and set up an office at home, you'll need to consider a few financial matters. First, there's insurance. James Barclay, technical home underwriting manager at Churchill Insurance, warns: 'Most home-contents policies exclude business equipment, so make sure you are covered. If a PC or fax is lost or damaged, that will affect your work and they can be expensive to replace.'

Ray Temple, an underwriter at Tolson Messenger, a specialist broker in business and homeworkers insurance, says: 'Make sure your domestic insurer and your mortgage lender are aware of the situation. Running a business or working at home can render your home insurance policy invalid and it can impact on your mortgage plans.'

Among insurers who provide cover for home offices are Axa Unity (0800 850 580), Norwich Union Homeplus (0800 092 9561), Churchill (0800 200 345), Cornhill Complete Home-business (available through brokers) and Tolson Messenger Homextra (0845 601 4527).

For a man, aged 40, working from home in a flat in London postcode N1, Churchill charges £215.25 a year. This covers up to £4,000 worth of computers and other office equipment and covers against personal liability. Premiums from Tolson Messenger start at £135.25 a year and cover up to £7,500 of equipment, £2m for public liability, both at home and away, and £10m for employer's liability. Norwich Union charges £72.90 a year in N1. This covers up to £5,000-worth of equipment and offers personal liability cover, but not away from the home.

'Don't underestimate the need for liability cover,' warns Temple. 'If someone falls and is injured at your house when visiting you for business, you could be sued. This sort of cover won't be included in domestic insurance. A good policy should cover for liability, home and away from your office.'

Be aware of your tax situation. If it is your choice to work at home and you are an employee, you will not be entitled to tax relief, says the Inland Revenue. Your employer may agree to pay for your phone bill, lighting, heating and any necessary office equipment, in which case they may be seen as benefits in kind. Your employer will need to declare this to the tax office.

What your boss pays for must be seen as justifiable and not beyond what is reasonable for your working needs. If they are deemed benefits in kind, you will be taxed and this should appear on your payslip. Some employers simply pay a flat-rate allowance for home-working and this will be taxed as extra pay.

If you are self-employed or running a business from home, you are entitled to tax relief and can offset some expenses against your tax bill. The Inland Revenue (08459 15 45 15) has information for people starting in business.

Inform your mortgage lender (or landlord or letting agent, if you rent) if you intend working from home. Some lenders specify that the mortgage loan is for a residential property only. Your council tax will not be affected if you work at home, but it will if you set up your own business.

Businesses and offices are charged at business rates - contact your council tax office if you are unsure of your status.