Why you can claim home working costs
When you work from home, part of your heating, lighting, broadband and other household costs are being used for the business. HMRC accepts that a fair proportion of those costs is a genuine business expense, which reduces your taxable profit and therefore your tax bill. This is one of the most common deductions for sole traders, and one of the most often under claimed.
The key word is fair. You cannot claim the whole of your household bills, only the business share. The two methods exist to give you a choice between a simple fixed amount and a more accurate, slightly more involved calculation. Home working sits within the wider set of allowable expenses a sole trader can claim, and it is worth seeing it in that context rather than in isolation.
It is also worth noting that this applies to the self employed specifically. Employees who work from home face much tighter rules. As a sole trader you have real flexibility here, provided you keep a sensible record of how you arrived at the figure.
The simplified flat rate method
The simplified method, sometimes called simplified expenses, lets you claim a fixed monthly amount based purely on how many hours a month you work from home. There are three bands. If you work between 25 and 50 hours a month from home you claim £10 a month. Between 51 and 100 hours it is £18 a month. For 101 hours or more a month it is £26 a month.
The appeal is obvious: no bills to dig out, no floor area to measure, no apportionment. You simply track your hours, pick the band, and multiply by the number of months you worked from home. For someone working full time from home all year at the top band, that is £26 multiplied by 12, giving £312 for the year.
The flat rate covers light, heat and power for the work area. It does not cover broadband or phone, which you can still claim separately on a business use basis on top of the flat rate. Good bookkeeping makes this easy, because you only need a simple note of your monthly hours to support the band you chose.
The actual cost method
The actual cost method works out the real business share of your household running costs. You add up the relevant costs, such as heating, electricity, broadband, and a portion of council tax and rent or mortgage interest, then apportion them by a reasonable measure. The usual approach is to divide by the number of rooms used for business and the proportion of time they are used for work.
This method takes more effort but can produce a larger claim, particularly if you work from home full time, have high energy bills, or use a dedicated room for the business. The trade off is that you must keep the bills and be able to show how you arrived at the apportionment if HMRC asks.
A word of caution: if you use a room exclusively and entirely for business with no personal use at all, there can be implications when you sell your home, and the apportionment must be genuine. In practice most sole traders use a room that has some personal use, which keeps things simple. Our explainer on allowable expenses goes into the principles of apportioning mixed costs in more depth.
A worked example
Sarah compares both methods
Sarah is a self employed bookkeeper who works from home around 120 hours a month, every month of the year. Under the simplified flat rate she falls into the top band of £26 a month, so her claim is £26 multiplied by 12, which is £312 for the year. She also claims her business broadband separately on top.
She then tries the actual cost method. Her annual heating and electricity come to £1,800, and she uses one of her six rooms as her office for about half of the time it is in use. A reasonable apportionment is one sixth of the bills for the business room, then halved for the personal use, giving roughly £150 a year from energy. Adding a fair share of other running costs brings her actual claim to around £260.
In Sarah's case the simplified flat rate of £312 actually beats her actual cost calculation of about £260, and it is far less work. That is often the outcome for people in modest sized homes with average bills. But someone with high energy costs, a larger home office or longer hours might find the actual method wins comfortably. The only way to know is to run both, which is exactly what the example shows.
Common mistakes
The first mistake is not claiming at all. Plenty of sole traders work from home and never claim a penny, simply because they assume it is too complicated or not worth it. The flat rate removes that excuse entirely, since it takes minutes.
The second mistake is mixing the two methods, or double claiming. You choose either the flat rate or actual costs for the household running element, not both. Claiming the £26 flat rate and then also claiming a share of the same heating bill is not allowed. Phone and broadband, however, sit outside the flat rate and can be claimed on top.
The third mistake is claiming an unrealistic share under the actual method. Claiming half your entire mortgage because you sometimes work at the kitchen table will not stand up. The apportionment has to reflect genuine business use, and you need to be able to explain it. Keeping the figures in your bookkeeping as you go means you are never reconstructing them under pressure.
What you should do
Start by working out roughly how many hours a month you work from home, because that alone tells you your simplified flat rate band. Then, if your bills are high or you use a dedicated space, spend twenty minutes calculating the actual cost figure and compare the two. Pick whichever is higher, note down how you got there, and use that on your return.
Whichever method you choose, keep a record. For the flat rate that is just your monthly hours. For actual costs it is the bills and your apportionment workings. Either way, the records turn a sensible claim into a defensible one.
If you would rather not work out which method suits you, or you want to be sure you are claiming everything correctly across your whole return, we can handle it for you. You can start your quote and let us take care of the calculation.
A clear explanation of how sole traders claim home working costs, comparing the simplified flat rate with the actual cost method so you choose the better one.
Frequently asked questions
How much can the self employed claim for working from home?
It depends on the method. The simplified flat rate is £10 a month for 25 to 50 hours, £18 a month for 51 to 100 hours, and £26 a month for 101 hours or more worked from home. Alternatively you can claim the genuine business share of your actual household running costs. You choose whichever gives the higher, fair result.
What is the difference between the flat rate and actual costs?
The flat rate is a fixed monthly amount based purely on hours worked from home, with no bills to track. The actual cost method works out the real business share of your heating, electricity, broadband and other running costs by a reasonable apportionment. The flat rate is simpler; actual costs can be larger but need more record keeping.
Can I claim both the flat rate and actual costs?
No, not for the same household running costs. You pick one method for heating, lighting and power. However, broadband and phone are not covered by the flat rate, so you can still claim the business proportion of those separately on top of the £10, £18 or £26 monthly amount.
Does the flat rate cover broadband and phone?
No. The simplified flat rate only covers light, heat and power for your work area. Your business use of broadband and phone is claimed separately, on top of the flat rate, based on the proportion that relates to the business. Keep a note of how you split personal and business use.
Do I need to keep records of my home working claim?
Yes. For the flat rate you only need a simple record of the hours you work from home each month to support the band you chose. For the actual cost method you need the bills and a note of how you apportioned them. Keeping these in your bookkeeping as you go makes the claim straightforward to justify.