The two methods
HMRC offers two ways to claim home working costs. You pick one and apply it for the whole tax year — you can switch methods year to year, but you can't mix them.
Method 1 — Simplified expenses (flat rate)
HMRC sets a flat monthly amount based on how many hours you work from home per month:
| Hours worked from home per month | Monthly flat rate |
|---|---|
| 25 to 50 hours | £10 |
| 51 to 100 hours | £18 |
| 101 hours or more | £26 |
No receipts, no calculations. If you work from home at least 25 hours a month you qualify. Claim the relevant amount for each month through your Self Assessment return.
Method 2 — Actual costs (proportionate)
You calculate the business share of your actual household bills. The typical approach:
- Add up relevant annual bills: electricity, gas, broadband, water
- Divide by the number of rooms in your home
- Multiply by the proportion of time that room is used for work
Example: Total household bills of £3,600/year. Home has 6 rooms. You use one room as a dedicated workspace for 50% of the time it's in use.
Business proportion = (£3,600 ÷ 6) × 50% = £300/year.
This method is more work but produces a higher deduction if you work long hours from home or have high utility bills.
What costs can be included
Allowable:
- Electricity and gas (for heating and lighting your workspace)
- Broadband — claim the business proportion if you also use it personally
- Water, if your work requires water use
- Business calls on a landline
Not allowable through this route:
- Mortgage capital repayments
- Council tax — currently disallowed for sole traders under the actual costs method, even though councils provide services your business indirectly uses
- Rent can be included, but see the note below
Rent as a deduction — proceed carefully
If you rent your home, you can include a proportion of rent under the actual costs method. However, this only makes practical sense if you have a genuine dedicated workspace, not just a laptop on the kitchen table.
If you establish a room as exclusively used for business, HMRC could in theory argue that portion is liable for business rates rather than domestic council tax. In practice this is rarely pursued for home-based sole traders, but it's worth understanding the theoretical position before making a large claim.
Which method is better for you?
Run the numbers with your actual figures. As a rough guide:
- Flat rate wins if your household bills are modest, you work from home part-time, or you'd rather avoid the record-keeping
- Actual costs wins if you work from home most of the time, have high utility bills, or use a dedicated room exclusively for work
The flat rate is capped at £26/month (£312/year). If the actual costs calculation produces significantly more than that, it's worth the extra effort.
Record keeping
For the flat rate: note how many hours per month you work from home. No receipts needed.
For actual costs: keep annual utility bills and a record of how you calculated the business proportion. You don't submit these with your return, but keep them for four years in case HMRC queries the claim.
For a full breakdown of all the expenses a sole trader can claim, see what can I claim as a self-employed expense?