Working from home expenses for sole traders: HMRC flat rate vs actual costs

If you run your sole trader business from home — whether full-time at a kitchen table, from a spare room studio, or doing admin in the evenings — you can claim a deduction for household costs on your Self Assessment return.

HMRC gives sole traders and unincorporated partnerships two methods to calculate use-of-home expenses:

1. Simplified expenses (flat rate): A fixed monthly allowance based on the number of business hours you work from home each month.
2. Actual costs (apportioned): A fair and reasonable share of your actual domestic utility bills, Council Tax, home insurance, and rent or mortgage interest, based on floor area or rooms and the time the space is used for work.

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Method 1: HMRC simplified expenses (flat monthly rate)#

Under section 94H of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), sole traders who work from home for at least 25 hours a month can claim a flat monthly rate instead of calculating the business share of heating and electricity bills:

How the monthly hours test works#

• Month by month: Your hours do not have to be the same every month. If you work 60 hours from home a month for 10 months of the year and 110 hours a month during 2 busy winter months, you claim 10 × £18 a month (£180) plus 2 × £26 a month (£52) = £232 for the tax year.
• Under 25 hours in a month: If your hours from home drop below 25 in a given month, the flat rate for that month is £0 (though you can use the actual-cost method instead).
• What counts as working from home: Core trade work done at home, plus administrative tasks such as invoicing, bookkeeping, answering client emails, and ordering supplies.
• Records to keep: You do not need to keep your domestic gas or electricity bills to justify the flat rate, but you should keep a simple record (such as a diary, timesheet or monthly note) showing the hours worked from home each month, plus your phone and broadband bills if you claim their business share separately.

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Method 2: Apportioning your actual household costs#

If you work from home regularly and your household bills are high, the actual cost method (explained in HMRC's Business Income Manual at BIM47800 to BIM47825) often produces a much larger deduction than £312 a year.

Which household bills can be apportioned?#

• Variable running costs: Heating (gas or oil), electricity, and metered water (if your trade uses significant water).
• Fixed household costs: Council Tax, mortgage interest (the interest element only — never capital repayments), or rent paid to a landlord, plus home insurance (unless your business has its own separate policy).
• Repairs to the workspace: Redecorating or repairing the specific room used for business, or a proportion of whole-house repairs (such as a boiler repair).

How to calculate a fair and reasonable proportion#

HMRC does not prescribe a single rigid formula in statute; instead, BIM47820 asks for a method that is fair, reasonable, and backed by facts. The standard approach combines rooms (or floor area) and time:

1. Count the rooms in your home (HMRC examples normally count living rooms and bedrooms, excluding hallways, bathrooms and kitchens).
2. Work out the room share used for business (for example, 1 room out of 5 = 20%).
3. Multiply by the proportion of time that room is used for business vs domestic use.

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Where working from home expenses go on SA103#

When completing your Self Assessment return (see SA103 boxes 11 to 19 explained):

• Household running costs (flat rate or apportioned bills): Enter in Box 14 (Rent, rates, power and insurance costs) on SA103S, or Box 21 on SA103F.
• Business share of phone and broadband bills: Enter in Box 18 (Phone, fax, stationery and other office costs) on SA103S, or Box 23 on SA103F.
• Office furniture and equipment (desk, chair, monitor): Under the cash basis, claim in Box 15 (Repairs and renewals of property and equipment) or Box 18 when paid for.

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Records to keep for 5 years after 31 January#

Under section 12B of the Taxes Management Act 1970, keep your working-from-home records for at least 5 years after the 31 January filing deadline for the relevant tax year:

• If claiming the flat rate: A monthly note or diary of the hours you worked from home, plus the bills for any phone and internet costs claimed in Box 18.
• If claiming actual costs: PDF or photographed copies of your utility bills, Council Tax bill, mortgage interest statement or tenancy agreement, and a short note recording the number of rooms and how you worked out the business-use percentage.