If you work from home as a sole trader — even part-time — you’re paying for the space, the heating, and the electricity your business uses. HMRC lets you deduct those costs. The question is how: a simple flat rate that takes 30 seconds to calculate, or the actual costs method that requires more record-keeping but can save you hundreds more in tax.
This is one of the most commonly missed deductions for UK sole traders. According to HMRC’s simplified expenses guidance, you can use either method as long as you genuinely carry out work from home — not just occasional emails, but substantive business activity.
For the full list of allowable expense categories, see our allowable expenses guide. This article covers the home-working rules in detail.
The two methods at a glance
| Method | How it works | Maximum annual deduction | Record-keeping |
|---|---|---|---|
| Simplified expenses (flat rate) | Fixed monthly rate based on hours worked from home | £312/year (£26 × 12) | Log of monthly hours worked from home |
| Actual costs | Business proportion of real household bills | No cap — depends on bills and business use | Bills, floor area calculation, usage records |
You cannot combine the two methods for the same property in the same tax year. You pick one. But you can switch between years.
Method 1: Simplified expenses (flat rate)
HMRC’s simplified expenses scheme uses fixed monthly rates based on how many hours you work from home each month. The rates for 2026/27 are:
| Hours worked from home per month | Flat rate per month | Annual equivalent (12 months) |
|---|---|---|
| 25 to 50 hours | £10 | £120 |
| 51 to 100 hours | £18 | £216 |
| 101 hours or more | £26 | £312 |
| Fewer than 25 hours | £0 | £0 |
If you work fewer than 25 hours from home in a given month, you claim nothing for that month. The rates are tiered by month, so if you work 120 hours in some months and 30 hours in others, you claim the rate that applies to each month individually.
What the flat rate covers
The flat rate covers heating, lighting, and power — the utility costs that increase when you work from home. It does not cover:
- Phone bills
- Internet bills
- Rent or mortgage interest
- Council tax
- Stationery or equipment
You claim phone and internet costs separately (the business proportion of your actual bills) under either method. Rent, council tax, and mortgage interest are only claimable under the actual costs method.
How to calculate your hours
Count the hours you spend doing business work at home — admin, invoicing, client calls, production, design, writing. Don’t count time spent on your commute, working at clients’ premises, or personal activities. Keep a simple log: a notebook or spreadsheet with the date and hours worked from home each month.
Worked example: flat rate
A freelance graphic designer works from home 4 days a week, about 30 hours per month of admin and design work at home (the rest is at client offices). Over 12 months:
- 12 months × £10/month (25-50 hours tier) = £120 deduction
At the 2026/27 combined rate of 26% (20% income tax + 6% Class 4 NI), that saves £31.20 in tax. Modest, but better than nothing — and it takes 30 seconds to claim.
A full-time consultant working 120+ hours/month from home:
- 12 months × £26/month = £312 deduction
At 26%, that saves £81.12 in tax. Or at the higher rate (40% + 2% = 42%), £131.04.
Method 2: Actual costs
The actual costs method lets you claim the business proportion of your real household running costs. You can claim:
- Heating and electricity — gas, electricity, oil
- Council Tax — the business proportion
- Rent — if you rent your home (the business proportion)
- Mortgage interest — the interest portion only (not capital repayments), business proportion
- Internet — the business proportion of your broadband
- Phone — the business proportion of your phone bill (line rental and calls)
- Water — if your water is metered and your business uses water (most don’t)
- Cleaning — if you pay for cleaning and part of the cleaned area is used for business
How to calculate the business proportion
There are two common methods:
By floor area: Count the number of rooms used wholly or mainly for business, divide by the total number of rooms. If you have a 4-room house and use one room exclusively as an office, you claim 25% of the allowable costs.
By time: If you use a room for business part of the time and personally the rest, divide by the proportion of time used for business. This is less common and harder to evidence.
HMRC’s example uses floor area: a 4-room house with one room used for business for 6 days a week. The electricity bill is £1,120/year. One room = 25% = £280. Then adjusted for time: 6/7 days = £280 × 6/7 = £240.
Worked example: actual costs
A consultant works from home full-time (40+ hours/week) in a 5-room house, using one room exclusively as an office. Annual household costs:
| Cost | Annual amount | Business proportion (1/5) | Deduction |
|---|---|---|---|
| Heating (gas) | £1,200 | £240 | £240 |
| Electricity | £1,100 | £220 | £220 |
| Council Tax | £2,100 | £420 | £420 |
| Mortgage interest | £6,000 | £1,200 | £1,200 |
| Internet (80% business) | £360 | £288 | £288 |
| Phone (60% business) | £480 | £288 | £288 |
| Total | £2,656 |
At the 2026/27 combined rate of 26%, that saves £690.56 in tax — versus £81.12 under the flat rate. A difference of £609.44.
At the higher rate (42%), the actual costs method saves £1,115.52 versus £131.04 under the flat rate — a difference of £984.48.
The actual costs method wins clearly when you work from home full-time and have significant household bills. The flat rate wins when you work from home occasionally, have low bills, or want simplicity.
The capital gains tax warning
If you own your home and use the actual costs method to claim based on floor area for a room used exclusively for business, HMRC may treat that room as not being part of your only or main residence. This means that portion of the gain when you sell your home would not be covered by Private Residence Relief and could be subject to Capital Gains Tax.
This is the main downside of the actual costs method for homeowners. The risk is highest when:
- You use one room exclusively for business (never personally)
- You claim based on floor area
- Your home has gained significantly in value since you bought it
How to reduce the risk:
- Use the room for some personal purposes as well (even occasional use can help)
- Use the simplified expenses flat rate instead (it’s not based on floor area, so doesn’t affect PRR)
- Take professional advice if your home has substantial capital gains
If you rent, this doesn’t apply — you don’t have Private Residence Relief on a rented property, so there’s no CGT risk from claiming actual costs.
Phone and internet: claim under either method
The simplified expenses flat rate covers only heating, lighting, and power. It does not cover phone or internet. Under both methods, you claim the business proportion of your phone and internet costs separately.
To calculate the business proportion:
- Internet: Estimate what percentage of your usage is for business. If you work from home full-time, 70-80% is defensible. Keep your broadband bills.
- Phone: If you have a separate business phone or mobile, claim 100% of that line. If you use one phone for both, identify business calls from the itemised bill or estimate a reasonable business percentage.
Record the basis for your apportionment — HMRC can ask how you calculated it.
Which method should you choose?
Choose simplified expenses (flat rate) if:
- You work from home fewer than 101 hours/month
- Your household bills are low (small flat, shared accommodation)
- You own your home and want to protect your Private Residence Relief
- You want simplicity and minimal record-keeping
- Your actual costs would be less than £312/year anyway
Choose actual costs if:
- You work from home full-time (35+ hours/week)
- You rent your property (no CGT risk)
- Your household bills are high relative to the flat rate
- You have a dedicated room used mainly for business
- You’re comfortable keeping bills and calculating proportions
Quick decision rule
Divide your annual household running costs (heating + electricity + council tax + rent/mortgage interest) by the number of rooms in your home. If that figure is more than £312, actual costs will likely save you more tax. If it’s less, the flat rate is simpler and probably better.
How to claim
On your Self Assessment return (SA103S for short, SA103F for full):
- Simplified expenses: Enter the flat rate total in the “Simplified expenses” box
- Actual costs: Enter the business proportion of each cost in the relevant expense boxes (use of home, phone, internet)
Under Making Tax Digital, your software will handle this — you enter the figures and the software reports them in your quarterly updates and final declaration. See our MTD readiness checklist for what you need to prepare.
The bottom line
Working from home expenses are one of the most under-claimed deductions for sole traders. The flat rate is worth up to £312/year and takes seconds to claim. The actual costs method can save you £600-£1,100+ in tax if you work from home full-time — but requires more record-keeping and, for homeowners, a careful look at the CGT implications.
For the full list of other allowable expenses you can claim alongside home costs, see our allowable expenses guide. For how all your deductions stack together to reduce your tax bill, see our reduce your Self Assessment tax bill guide.