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Practice Note 8: Appendix 1 - Working At or From Home: The Domestic/Non Domestic Borderline

1. Introduction

A tradition of working at home goes back many years from taking in washing and sewing to selling insurance, repairing cars or offering services such as an osteopath or chiropodist. In more recent years with the development of e-commerce and communication by computer and the Internet, many more people are working at or from home, using the employer's office as a base only for meetings and downloading/picking up work. With video conferencing even meetings can be conducted away from the workplace and at home.

This new trend of office work migrating to the home has highlighted the need for the VOA to have a defined policy regarding the rating of rooms used exclusively for business purposes within homes. An increasing number of inquiries are being received from potential ratepayers who want guidance prior to them taking a decision with their employer to change their traditional pattern of working.

2. Relevant statutory provisions

Section 64(9) LGFA 1988 "a hereditament is composite if part only of it consists of domestic property".

Section 66(1) LGFA 1988 to be domestic property it has to be "used wholly for the purposes of living accommodation."

Section 67(4) provides that a hereditament is a relevant composite on a particular day if it is a relevant composite immediately before the day ends.

Section 67(5) - for the purpose of deciding the extent (if any) to which a hereditament consists of domestic property on a particular day, the state of affairs existing immediately before the day ends shall be treated as having existed throughout the day.

This means that it is necessary for the VO to consider the use made of the particular room in the house at 'a minute before midnight', and if not in use, when next in use it is for a non domestic purpose, then prima facie that room should be subject to an entry in the rating list.

3. Practical difficulties

The problems in practice occur when a person uses a room during the day as an office and in the evening it is used for domestic purposes. If the room is separated from the rest of the dwelling physically, for example by conversion of an integral garage to an office, then this situation is less likely to occur. If the person working from home just uses the dining room table and a filing cabinet, a non domestic use cannot be established at 'the end of the day'.

Where a room (possibly one designed as a bedroom) is used as an office, it is equipped with a desk, filing cabinet, computer and dedicated telephone/fax line, but in the evening it is used to complete the accounts of the local hockey club or catch up with the payment of domestic bills, and retains its domestic character, following the decision of the President of the Lands Tribunal in Tully v Jorgensen ( VO) 2003 RA 233, this type of mixed activity will fall within the definition of “ living accommodation “ in section 66(1)(a) of the LGFA 1988 and therefore should not be rated. If structural alterations are made to the property or there is a change in the intensity of use so that part of the dwelling loses its residential character then a case can be made for a non domestic rating assessment for this part of the dwelling.

Rooms used by members of the public who visit the premises for consultation, whether for treatment or to discuss a matter with the ratepayer in a professional capacity, or by an employed member of staff such as a typist, will usually be non domestic unless it can be clearly shown that they are used regularly for domestic purposes at other times of the day and at weekends.

In Fotheringham v Wood (VO) [1995] RA 315 it was held that 2 rooms in a dwelling used for the purposes of the taxpayers business as an accountant were rateable, and the appeal hereditament was not wholly domestic property because it was not used wholly for the purposes of living accommodation.

Room 1 had a desk and computer terminal and the adjoining study contained a desk, word processor, business books and files. Files relating to former clients were stored in a bedroom on the second floor.

Three or four clients visited the appeal hereditament each week, and one or possibly two weekly consultations took place in the study or dining room. Seventy hours of office work were carried out at the appeal hereditament in October 1992, and on the material day the appellant had about 70 clients. A part-time secretary was employed at the property, together with a temporary student accountant. There was no planning consent for office use. This case illustrates the difference between working at home, which often results in one room at least being dedicated to business use as an office, and working from home when the intensity of use of otherwise domestic accommodation is likely to be far less.

Bell v Rycroft (VO) [2000] RA 103 concerned a day nursery established in part of a semi detached house. A garage adapted and converted internally with a connected building constructed in 1989 with adjacent wc and shower room were held to be rateable. Parts of the main house used concurrently with its continued use for living accommodation were regarded as de minimis. Planning permission for the nursery use had been given subject to a daily time limitation, and a maximum of 10 children under 5 years of age could be accommodated at one time. A minimum of 3 staff on duty was required at all material times. Outside nursery hours the ratepayer and his family used the whole premises, including the nursery, at their discretion. The extended garage building (nursery space) was fitted, and furnished for that use.

Having carefully considered the evidence and the submissions of the ratepayer as to "the state of affairs existing immediately before the day ends" the Lands Tribunal decided that the use and occupation of the nursery space could not reasonably be considered as other than non domestic. Any domestic use was found to be minor or ancillary, and therefore insufficient to displace the principal use, it was therefore held to be non-domestic.

4. Guidance

The first step is to identify the hereditament as required by section 115 of the General Rate Act 1967 - the normal rules of rating apply. It is then necessary to consider whether the whole or part of the dwelling is domestic property. To pass this test the property must be

1. "used wholly for the purposes of living accommodation" (Section 66(1)(a) LGFA 1988)

2. "a yard, garden, outhouse or other appurtenance belonging to or enjoyed with the living accommodation" (section 66(1)(b))

3. "a private garage having a floor area of 25m2 or less or used wholly or mainly for the accommodation of a private motor vehicle" (section 66(1)(c))

4. "private storage premises used wholly or mainly for the storage of articles of domestic use" (section 66(1)(d)).

The important word in section 66(1)(a) is "wholly". It is therefore necessary to look at the use of the dwelling. If it is clearly domestic in character, and the non domestic use is de minimis, then the whole of the hereditament is domestic property and a dwelling for Council Tax purposes. If part is clearly used for a business as its main purpose and the domestic use is minor - perhaps occasional use in the evening - then that part should be treated as non domestic in the rating list. No express definition has been included in s66 or elsewhere as to what comprises living accommodation and "de minimis" use, and each case will vary according to its own facts.

Statements about the degree of non-domestic use which might be permissible before rateability is triggered were made during the Parliamentary and consultative processes and these guidelines are to be followed . During the House of Lords Report Stage of the Local Government Finance Bill, on 4 July 1988, Lord Caithness said:-

"Where the use of domestic property for a non-domestic purpose does not materially detract from the domestic use, that should not result in that property being rated".

In the Consultation Paper "Proposed Amendments to the Boundary between Domestic and Non-Domestic Property" issued in December 1988, the issue of Minor Non-Domestic Use was considered in paragraph 4.2. In considering the point at which the level of non-domestic use would become material and therefore liable to be rated, the suggested guidelines were:-

"The question of whether the use of a domestic property for non-domestic purposes is material is to be decided having regard in each case to:

● The effect of the extent and frequency of the non-domestic use, and

● Any modifications made to the property to accommodate that use"

Combining those statements, non-domestic use of part of a dwelling should only be considered to be rateable when it occurs within the curtilage of, or when it belongs to or is enjoyed with, a domestic property, when that use materially affects the enjoyment of the residence as a residence, having regard to the extent and amount of use, and taking account of any structural changes that have been made to the property to facilitate that use. The Tully decision in 2003 supports this reasoning, but put a wider emphasis on what is meant by “living accommodation”. Mrs Tully was an employee of the Inland Revenue who worked almost fully from home using a spare bedroom. She used the room for family purposes at other times. She received no business visits from clients or work colleagues, and no physical alterations had been made to the property.

The caseworker will need to determine whether the room or the property generally been specially adapted or extended for its 'business' use, as in Bell v Rycroft, and decide if there is any special equipment e.g. couch or sun lamps that would not be associated with normal domestic and recreational activities.

Are any staff employed at the property? Is the occupier visited at home by clients or business associates? If so what is the frequency and intensity of such employment or visits to the property?

How many hours are worked at home during a normal week and at the material day?

Is the business use advertised to the public by means of a sign at the property or in the telephone directories/newspapers?

Has planning consent been obtained for the non domestic use? This is not conclusive but if there is a planning consent it will help to establish that the predominant use of part of the dwelling is not domestic.

The fact that Income Tax allowances or Capital Gains Tax relief have been given by the Inspector of Taxes does not affect the treatment for rating purposes, but standard tax planning advice in all "business use" situations is to ensure that the home office is actually used for residential purposes in ways that are verifiable, and that appropriate records are kept of such use. These may be of assistance in dealing with an appeal for rating and Council Tax.

Each case will be dealt with on its own facts, and the benefit of any doubt must always be given to the occupier.

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