Accounting Web’s TaxZone reports on the tax-testing case of South Londoner Eileen Tully who’s tussle with local valuation officers has caused a stir of worry with homeworkers over the country.

Mrs Tully, an Inland Revenue analyst, began working from home with her employer's blessing after suffering a back injury.

After working at home for five years the Tulleys found themselves at the receiving end of a demand for business rates.

The Tully case, which became a major legal test case for homeworkers all over the country, was settled last year, reported the Observer newspaper. Mrs Tully's spare room has officially been restored to its original status as domestic premises.

The case has cleared up much of the confusion over business rates liability for home offices.

“Thousands of home-based workers can breathe a sigh of relief,” says Alan Denbigh, executive director of the Telework Association and himself a homeworker. “It removes uncertainty. The fact that business rates could conceivably be levied and backdated caused many people concern, even though in practice there were very few cases like this one.”

The ruling also helps many self-employed people, including writers and consultants with offices at home.

The ruling

The tribunal ruling suggests that home-based working using furniture and equipment of a kind commonly found in ordinary homes can be treated as a normal part of the use of a residential property.

This means home-based employees in situations like Mrs Tully's are unlikely in future to encounter problems with business rates.

The Lands Tribunal ruling makes it clear, however, that there are still some occasions when working from home could create a business rates liability:

• Structural alterations to a building can be one significant factor - in an earlier test case, a garage that had been converted into a children's day nursery was deemed to be business premises.
• The presence in the house of staff or public visitors.
• The use of equipment not normally found in domestic homes.
• The advertising of the business externally.

The issue of business rates is one of a number of legal and tax problems that have traditionally worried home-workers. Another is the capital gains tax liability (CGT ) that can potentially be levied on the proportion of a house used for work purposes when homeowners come to sell.

Although the Lands Tribunal ruling does not directly affect CGT, it does suggest, says The Observer, that the use of home offices is now becoming accepted as a normal part of life. In practice, and particularly given the annual exemption limits for CGT, few homeworkers need to lose much sleep over this issue.

Homeworkers can draw an unofficial lesson from the Tully case. Mrs Tully's spare room was reclassified as business premises only because she had herself, perhaps rather unwisely, contacted the district valuer to point out that she was using a bedroom as an office and to ask for a council tax reduction.

Without that, it is highly unlikely that any authority would have been aware of her move to home-working. Maybe the wisest course for many people beginning working from home may simply be to keep quiet about it.