Working from home expenses in the UK: simplified flat rates vs actual costs

Millions of UK businesses are run from a spare room, a kitchen table or a converted garage. Home working lowers overheads, but it also raises a question: what part of your home costs can you legitimately claim? The answer depends on whether you are a sole trader or a company director, and on which method you choose. This guide explains both methods, what you can include, what you cannot, and how to keep the evidence that makes a claim safe.

The principle

HMRC allows a deduction for the additional or proportionate costs of using your home for business. The test is again the wholly and exclusively rule: a cost must be incurred for the purposes of the business. Because home costs are shared between private and business use, you can claim only the business share, and you must be able to justify how you calculated it.

Method one: simplified flat rates

Sole traders can use HMRC's simplified expenses to claim a fixed amount based on the number of hours worked from home each month, instead of calculating actual costs.

Hours worked from home per month	Flat rate per month
25 to 50	£10
51 to 100	£18
101 or more	£26

The flat rate covers additional household costs such as heating, lighting, power and water, and also covers the extra cost of internet and telephone for a home office. It is easy to use and needs only a record of your hours, but you can still claim phone calls and broadband separately if they are business-only. Over a year, a full-time home worker can claim £312. If your real extra costs are higher, the actual method may produce more.

Using flat rates does not stop you from claiming the cost of equipment, furniture and supplies for your home office, such as a desk, a chair or stationery. Those are separate costs.

Method two: actual costs

Under the actual cost method, you work out the business proportion of each household cost and claim that share.

Rent or mortgage interest. Only for rented premises can you claim a share of rent. For homeowners, mortgage interest and capital repayments are generally not claimed because of capital gains tax implications, but you can claim part of other costs.

Utilities. Electricity, gas, water and council tax can be apportioned.

Insurance. The business share of home contents and buildings insurance.

Repairs and cleaning. The business share, for example of a shared room.

Internet and phone. The business proportion of your broadband and mobile.

Common ways to apportion are by room, by time or both. If you have 6 rooms and use one as an office, one sixth is a reasonable starting point for room-based costs, and you would adjust by the proportion of time the room is used for work, for example 40 hours in a 168-hour week. Our example: a sole trader with £2,400 of annual household costs, using one of six rooms for 40 of 168 hours, would claim about £2,400 × (1/6) × (40/168) which is about £95. That is lower than the £312 flat rate, which is why many sole traders prefer simplified rates.

Capital gains tax and exclusive use

Claiming a proportion of your home for business, particularly if a room is used exclusively for business, can affect the capital gains tax exemption on your main home when you sell. Using a room exclusively for business can mean that part of the gain is no longer covered by private residence relief. Using it partly for business and partly for private life, or choosing the simplified flat rate, usually avoids the problem. This is a point to discuss with your accountant.

Company directors

If you run a limited company, the rules differ because the company, not you, is claiming. A company can:

• Pay you a reasonable amount for the additional household costs you incur working from home, supported by evidence of those costs.
• Rent a room from you at a fair rent, which creates income for you and needs careful handling.
• Pay directly for specific business costs, such as a dedicated business phone line or broadband contract.

The company should not simply pay a flat sum without evidence. Rules on what tax-free payments employers can make for working from home have changed in recent years, so check current HMRC guidance or ask your accountant. Record any such payment in the books against the director's expense account. See our guide to limited company bookkeeping.

What you cannot claim

• Costs of the whole home when only part is used for work
• Mortgage capital repayments
• Everyday household food and drink
• Decoration of rooms used mainly for private purposes
• Costs unconnected with the business

Keeping records

For simplified rates, keep a note of the hours you work from home each month, for example a simple calendar or time-tracking record. For actual costs, keep the bills, your calculation of the business share and the reasoning behind it. Keep the records with your other business papers for the standard retention period. See business records for HMRC.

Equipment and furniture

Desks, chairs, computers, printers and other equipment bought for the business can be claimed in full if used wholly for business, and for the business share if mixed use. Most equipment qualifies for the Annual Investment Allowance. Keep the invoices and record the item as an asset. Small items such as stationery are ordinary expenses.

Which method is better?

Do the sums both ways once, and then choose the method you can maintain easily.

Simplified flat rates usually win when your actual costs are modest, you want minimal record keeping and you work long hours at home.

Actual costs can win if your household bills are high, you have a dedicated room and you are comfortable calculating the proportion.

You can switch method from year to year, though consistency helps. Our sole trader tax calculator shows how much a deduction reduces your tax.

Common mistakes

• Claiming the full cost of household bills
• Not recording hours when using flat rates
• Claiming both flat rates and actual costs for the same expenses
• Forgetting the capital gains consequences of exclusive use
• Claiming mortgage capital repayments
• Not keeping bills

How it fits into your bookkeeping

Record the home office claim as a single adjustment at the end of the year, or monthly if you prefer, so that your profit is accurate throughout the year. For Making Tax Digital quarterly updates, a monthly allocation of flat rate costs keeps each quarter's figures realistic. Our receipt and expense capture and monthly bookkeeping services keep the records tidy.

Frequently asked questions

Can I claim home office costs as a sole trader?

Yes, either with HMRC's flat rates based on hours worked from home or with a reasonable share of actual costs.

How much can I claim using flat rates?

£10 a month for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more.

Do I need a dedicated room?

No. You can claim for working at a kitchen table. A dedicated room can lead to capital gains tax questions when you sell.

Can my limited company pay me for working from home?

Yes, for additional costs you incur, supported by evidence and in line with current HMRC guidance.

Can you help me record these properly?

Yes. We code home-working costs correctly each month. Get an instant quote.