Working From Home Expenses for UK Sole Traders

If you run your business from home — even part of the time — HMRC allows you to claim your working from home expenses as a deduction against your taxable profit. That reduces both your income tax and your Class 4 National Insurance bill.

But there are two different methods for calculating what you can claim, and choosing the right one can make a meaningful difference to how much you save. This guide explains both clearly, walks through a real worked example comparing them, and helps you decide which suits your situation.

Two HMRC methods for working from home

HMRC gives sole traders two legitimate options for claiming home working expenses:

1. Flat rate (simplified expenses) — a fixed monthly amount based on how many hours you work from home, with no receipts required
2. Actual costs method — a calculated proportion of your real household bills, based on how much of your home is used for work and how often

Neither method is automatically better. It depends on your household costs, how much space you use for work, and how many hours you spend working there.

Method 1: Flat rate (simplified expenses)

HMRC's simplified expenses scheme lets you claim a fixed monthly amount without tracking or apportioning individual bills. It is low-admin and straightforward to apply.

HMRC flat rates for working from home (2025/26)

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

These rates apply per calendar month. If you work 60 hours from home in January but only 20 hours in February, you claim £18 for January and nothing for February — you must exceed 25 hours in a month to claim anything for that month.

Who the flat rate suits

• Sole traders with modest household bills
• People who work from home part-time or irregularly
• Anyone who wants a simple, low-admin approach
• Those who prefer not to keep detailed records of household costs

What you cannot claim alongside the flat rate

If you use simplified expenses for home working, you cannot also claim actual household bill costs for the same property. It is one method or the other for a given tax year. You can switch between methods from one tax year to the next.

You can still claim other business expenses separately — such as a dedicated business phone line, or office equipment bought solely for work.

Method 2: Actual costs

The actual costs method lets you claim a calculated proportion of your real household running costs. It takes more work to calculate, but often produces a significantly larger deduction — particularly if you have high bills or use a meaningful portion of your home for work.

What you can include

• Gas and electricity (heating and lighting)
• Water rates (if applicable to your work use)
• Broadband (work-use proportion only)
• Rent (work-use proportion)
• Mortgage interest — not capital repayments (work-use proportion)
• Council tax (work-use proportion)
• Home insurance (work-use proportion)
• General repairs and maintenance (work-use proportion)

What you cannot include

• The full cost of any bill — you must always apportion
• Capital repayments on a mortgage (only interest is allowable)
• Personal share of any cost
• Improvements to the property — these may create a Capital Gains Tax issue on sale

How to calculate your work-use proportion

HMRC does not specify a single formula, but the standard approach combines two factors:

1. Room proportion: Count the usable rooms in your home (excluding bathrooms and hallways). Identify how many are used for work. One room out of four gives a room proportion of 25%.

2. Hours adjustment: If the room is not used exclusively for work — for example, your dining table doubles as a desk — also factor in the proportion of time it is used for work. If you use the room for work 40 hours a week out of 168 total hours, that is roughly 24%.

3. Combined proportion: Multiply the two together. In the example above: 25% × 24% = 6% of total household bills.

The key principle is that the claim must be reasonable and defensible. HMRC wants you to use a fair and consistent method from year to year.

Phone and broadband

Phone and broadband deserve separate treatment because they are common sources of confusion.

• Dedicated business line or mobile: You can claim 100% of the cost.
• Personal phone or broadband package used for work and personal purposes: You can claim only the business-use proportion. There is no set formula — HMRC expects a reasonable estimate. Most sole traders working from home full-time claim 50–80% of their broadband bill.

Keep a brief note of how you arrived at your proportion in case HMRC asks you to explain it.

Worked example: comparing both methods

Here is a real scenario run through both methods side by side.

Sarah is a freelance graphic designer. She works 60 hours per month from home in a spare bedroom she uses exclusively as a studio. The house has four usable rooms in total.

Annual household costs:

Cost	Annual total
Gas and electricity	£1,800
Broadband	£360
Council tax	£1,500
Rent	£12,000
Total	£15,660

Method 1: Flat rate

60 hours per month puts Sarah in the £18/month bracket.

Annual claim: £18 × 12 = £216

Method 2: Actual costs

Sarah uses one room out of four exclusively for work — a room proportion of 25%. Because the room is used solely for work, no further hours adjustment is needed.

She claims 25% of each eligible cost (and 80% of broadband, as an estimate of her work-use proportion):

Cost	Annual	Claim
Gas and electricity	£1,800	£450
Broadband (80% work use)	£360	£288
Council tax	£1,500	£375
Rent	£12,000	£3,000
Total	£15,660	£4,113

Annual claim (actual costs): £4,113

Comparison

Method	Annual claim	Tax saved (basic rate, 20%)	Tax saved (higher rate, 40%)
Flat rate	£216	£43	£86
Actual costs	£4,113	£823	£1,645

In Sarah's case, the actual costs method delivers dramatically more tax relief. But she has a dedicated room and significant rent — both factors that make her situation well-suited to the actual costs method. Someone with lower bills or a shared working space would see a smaller gap.

Which method should you use?

Situation	Better method
You work from home occasionally or part-time	Flat rate
Your household bills are low	Flat rate
You share your working space with personal use	Flat rate (simpler to defend)
You have a dedicated room used mainly for work	Actual costs
You have high rent, mortgage interest, or energy bills	Actual costs
You work from home full-time	Actual costs (usually)
You want minimal admin	Flat rate
You want to maximise your deductions	Actual costs

MTD software and home working records

Under Making Tax Digital for Income Tax, sole traders earning over £50,000 must keep digital records of income and expenses from April 2026 and submit quarterly updates to HMRC. Check whether MTD applies to you if you are unsure.

Most HMRC-recognised accounting apps include dedicated expense categories for home working costs. With software such as FreeAgent, Xero, QuickBooks, or Sage:

• You can create a recurring expense entry for your monthly home working claim
• Bank feeds pull in transactions automatically, reducing manual entry
• Expense categories map directly to self-assessment boxes
• Quarterly submissions are generated from your live records

If you are using the actual costs method, the annual proportion calculation still needs to be done manually — but the software handles the digital record-keeping and quarterly reporting around it. MTD-compliant apps also make it straightforward to keep the records HMRC requires for all your expense claims.

Prices as of April 2026 — check each provider's website for current pricing.

Key rules to remember

• You must be genuinely working from home — you cannot claim if you only have a home address and actually work elsewhere
• You can switch between the flat rate and actual costs method from year to year, but not within the same tax year
• Keep records for at least five years after the relevant Self Assessment filing deadline
• Claiming 100% of any bill is almost never justifiable — HMRC requires a reasonable apportionment wherever personal and business use overlap

For a full overview of all the expenses sole traders can claim — including travel, equipment, professional fees, and training — see the complete HMRC allowable expenses guide.