Self-employment is growing rapidly.

Since the financial crisis in 2008, the number of people in the UK who are self-employed has increased by 650,000 to reach 4.5 million, or nearly 15% of all employment, the Office for National Statistics said last week.

For some people, self-employment has been a necessity as a result of the recession. Between 2008 and 2013, the number of employed jobs in Scotland fell by 156,000 according to a report just published by independent think tank the Resolution Foundation. The rise in self-employment in Scotland and elsewhere in the UK has helped to mask the effects of this drop in employee jobs.

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But the typical self-employed person now earns 40% less than the typical employed person, and only 30% of self-employed people are contributing to a pension, compared with 51% of employees. Some are also experiencing difficulties getting access to mortgages, tenancies, personal credit and loans, due to their employment status.

But it is not all bad news. For some, the decision to set up their own business is liberating, and working from home is seen as a way of keeping costs down. But there can be more to using your home to run a business than meets the eye.

Among those who made a conscious decision to become self-employed was Jeremy Needham from Fenwick in Ayrshire, who set up his own garden design business from home in 2007.

He had been a history teacher, but said: "I got to 40 and I decided it was now or never, so I retrained in garden design. I did think of renting an office to raise my profile but it seemed prohibitively expensive."

The majority of new businesses - 70% - are started from home, according to the Home Business Insight Report compiled by AXA Business Insurance and small business network Enterprise Nation.

The main reasons for starting from home were lower start-up costs, with two-thirds citing modern technology as a critical factor. One in 10 enterprises based at home previously had business premises.

Two-thirds of home-based businesses are run by women, and there can be practical reasons for women pursuing this option. Many mothers are doing so because of the prohibitive childcare costs associated with working a traditional nine-to-five job, according to research from Direct Line for Business. Almost half of the mothers (49%) surveyed believed they would be better off if they started a business from home.

But insurers warn that anybody working from home should be sure to check the situation with their household insurer. Darrell Sansom, managing director of AXA Business Insurance, said: "Even if you are not storing stock or other equipment for your business at home and don't feel extra insurance is necessary, it is important to check that what you are doing is not invalidating your normal household cover.

"If you are simply undertaking some office work at home, the chances are you won't have to pay a higher premium. If you are advised to take out some insurance to cover the tools of your trade, it may only cost another £4 or £5 per month. It is silly not to ask your insurer."

Home businesses may also need extra public liability insurance. Stuart Saggers of Direct Line for Business said: "Your household policy includes some public liability cover, so if the postman trips up on your garden path delivering your normal mail, for example, you would be covered. But if you had customers coming to your home your normal insurer might consider that an extra risk."

HE added: "If you are selling a product like cakes, you should also consider product liability cover in case someone gets food poisoning. If you were sued and found negligent, the insurer would cover the damages. If you had, for example, told the customer to keep the product chilled and they hadn't, the insurer would defend the claim."

Some people are reluctant to admit they are running a business from home in case their mortgage lender finds out or they end up incurring extra rates. However, rooms are only likely to be deemed commercial if they are used exclusively for this purpose. Using the kitchen table for making jam for your business is unlikely to count.

Shella Ali, a spokeswoman for Halifax, said: "As far as we are concerned, running a business from home won't affect your mortgage unless you are using 40% or more of your property for the purpose. Then we would expect you to take out a commercial loan."

It is also unlikely you would be asked to pay business rates unless the commercial use was intensive.

A Scottish Government spokesperson said: "In deciding whether or not part of a property should be liable for business rates there are a range of factors to take into consideration, including the extent and frequency of the non-domestic use of the room (or rooms) and any modifications made to the property to accommodate that use."

It is the Scottish Assessors, who are independent from the Scottish Government, that determine whether or not a property is liable to pay business rates or council tax.


Lucy Haughey from Glasgow decided to set up her own business, the Plan B Partnership, with her partner after being made redundant in 2010. She had worked in the charity sector and her new business is a social enterprise aimed at promoting and enabling financial inclusion.

Early on she decided to rent office space but after six months felt it was a waste of money. She says: "Since then I have worked from home which I like because it enables me to combine my work and my role as a mum to three children."

Besides extra contents cover and public liability and public indemnity insurance, she has also taken out income protection insurance.

Picture: Martin Shields