The two methods for sole traders
HMRC allows self-employed UK taxpayers two ways to claim use of home costs as a business expense: simplified expenses (flat rate) and actual-cost apportionment.
Simplified flat rate
| Hours worked from home per month | Monthly allowance | Annual allowance |
|---|---|---|
| 25 – 50 hours | £10 | £120 |
| 51 – 100 hours | £18 | £216 |
| 101+ hours | £26 | £312 |
Zero admin — no receipts, no apportionment. Count the hours you work from home each month, pick the band, claim the flat rate. Works for most freelancers and small sole traders. Does not cover business phone or broadband costs — those are claimed separately.
Actual-cost apportionment
Calculate the business proportion of your household running costs. The formula HMRC accepts:
(rooms used for business ÷ total rooms) × (hours used for business ÷ total hours available) × annual household bills
Household bills include: gas, electricity, metered water, council tax, rent (or mortgage interest, not capital), broadband, home insurance. Exclude: food, entertainment, one-off home improvements.
A sole trader using one of five rooms for 30 hours a week with £6,000 of annual household bills: (1 ÷ 5) × (30 ÷ 168) × £6,000 = £214/year. Compare to simplified flat rate at 120 hrs/mo = £312/year — the flat rate wins here. For someone with higher bills (£9,000/yr) using the same room, actual cost jumps to £321, overtaking the flat rate.— GoForma technical team, 2025/26 tax year modelling
Employees working from home
Employees can claim £6 per week (£312/year) if they are required to work from home — meaning your employer has no office available to you, or your role is formally home-based. Since April 2022, HMRC has been strict: voluntary WFH arrangements do not qualify, even if your employer encourages it. Hybrid workers who split their time between home and office generally cannot claim unless the home element is contractually required.
Claim via form P87 or Self Assessment if you already file one. You can backdate up to four tax years.
Limited company directors
Directors with a home office have two options:
- HMRC’s £6/week flat rate — the company reimburses you £6/week (£312/year) tax-free, no receipts needed. Covers light and heat; the company can separately provide broadband and business phone. Simplest option.
- A commercial rental agreement — you rent a room of your home to your own company. The company gets a tax-deductible expense, you declare the rental income on your personal return, and claim the allowable costs of the rental (proportion of utilities, wear and tear). Typically yields more but needs careful documentation.
The Capital Gains Tax trap
If you claim a room as used exclusively for business, that portion of your home loses Private Residence Relief when you sell. On a £500,000 house where one of five rooms was "100% business," 20% of any gain on sale becomes taxable — potentially tens of thousands of CGT. Almost all sole traders and directors keep their home office mixed-use to avoid this: the room is the home office during business hours but also used for personal reading, storage, or occasional spare-room duty outside those hours.
When is actual-cost worth the paperwork?
Rule of thumb: stick with the flat rate unless your actual-cost allowance would exceed £500/year. That usually means:
- Working from home 30+ hours per week across the year.
- Household bills (excluding mortgage capital) above £8,000/year — common with larger homes or in London.
- Having a single room that can be reasonably identified as the work space (kitchen-table working is hard to apportion credibly).
Below those thresholds, the admin cost of tracking bills and maintaining apportionment evidence rarely pays back versus the simplified flat rate.