Use of Home as Office
Flat Rate vs Actual Costs (2025/26)

If you run your business from home, even just for the admin, the invoicing and the late-night quoting, HMRC lets you treat part of your household running costs as a business expense. It is one of the most commonly claimed deductions by UK sole traders, and one of the most commonly under-claimed too, because the rules give you two routes and people pick the easy one without checking whether it costs them money.

This is not a fixed allowance with a single number. It is a method of arriving at a reasonable figure. The 2025/26 simplified flat rates are set by HMRC, but the actual-cost route can produce a much larger deduction if you spend serious hours working from home. The companion guide on the broader working from home allowance covers the employee side; this page is specifically for the self-employed.

The 2025/26 Simplified Flat Rates

HMRC's simplified expenses scheme gives the self-employed a flat monthly amount based purely on the number of hours you work from home each month. You claim nothing for the actual bills; the flat rate is deemed to cover the lot. The rates have not changed for 2025/26.

A few practical points the table hides. The flat rate covers heating, lighting and power only. It does not include telephone and broadband, so you can claim the business proportion of those costs on top of the flat rate. And the hours are counted month by month, so a month where you only did 20 hours of home admin gives you nothing, while a busy month at the desk gives you the top band.

If you are a freelance designer working 30 hours a month from home

You spend roughly 30 hours a month at home invoicing, emailing clients and doing the occasional bit of design work, with the bulk of your time on site or in a studio. You fall in the 25 to 50 hour band, so your flat-rate claim is GBP 10 a month, or GBP 120 for the year. On top of that you can add the business share of your broadband. If half your broadband use is for the business and your bill is GBP 30 a month, that is another GBP 15 a month, taking your total home-office deduction to around GBP 300 for the year. No receipts are needed for the flat-rate portion.

The Actual-Cost Method

The alternative is to work out the genuine business proportion of your real household costs. This is more work, but for anyone working from home full time it usually wins, often by a wide margin.

You apportion your bills by both area and time:

• Count the rooms in your home (excluding bathrooms, hallways and kitchens by some interpretations, though HMRC accepts a reasonable basis).
• Work out how many rooms you use for business and what fraction of the time those rooms are used for business rather than private purposes.
• Apply that fraction to the running costs that vary with use.

Costs you can apportion include electricity and gas, council tax, water (if metered and relevant), home insurance, broadband and phone, and a reasonable share of cleaning. Mortgage interest can be apportioned for the business-use share, but not mortgage capital repayments. Rent can be apportioned if you rent.

If you are a full-time home-based bookkeeper

You work 40 hours a week entirely from home in a spare room. Your home has six rooms; you use one of them for business. Your total apportionable household costs (electricity, gas, council tax, insurance, broadband) come to GBP 4,800 a year.

• Room fraction: 1 of 6 rooms = 1/6.
• Time fraction: the room is used for business roughly 45 hours of the 110 waking hours a week it sees any use, say 40 percent.
• Business proportion: 1/6 x 40% = approximately 6.7%.
• Deduction: GBP 4,800 x 6.7% = roughly GBP 320.

That is already more than the GBP 312 flat-rate ceiling, and a full-time worker with higher bills would comfortably beat it. The trade-off is that you must keep your utility bills, council tax statements and broadband invoices. The sole trader tax calculator lets you model how a deduction of this size feeds through to your final tax and National Insurance bill.

Flat Rate vs Actual Costs: Which Should You Use?

There is no permanent choice. You decide each tax year, and you can switch. As a rule of thumb:

• Choose the flat rate if you work from home part time, your bills are modest, or you simply value not keeping receipts. It is robust, HMRC-approved and almost never queried.
• Choose actual costs if you work from home full time or for most of your working week, especially if you have high heating bills or a large home, because the apportioned figure will usually exceed GBP 312.

The Capital Gains Trap to Avoid

Here is the pitfall that catches the unwary. If any part of your home is used exclusively for business, the Private Residence Relief that normally exempts your main home from capital gains tax can be restricted on that portion when you sell. Both the flat rate and a sensibly drafted actual-cost claim assume mixed use, the spare room is also a guest room, the desk shares the dining room, so the relief stays intact.

The practical advice is simple: never designate a room as 100 percent business-only. Keep a non-business use for every space, even a small one, and you keep your full relief. The tax saved on a few hundred pounds of expenses is not worth risking thousands in CGT on a future house sale.

Recording It Under Making Tax Digital

From April 2026, sole traders with qualifying income over GBP 50,000 must keep digital records and file four quarterly updates rather than one annual return. The use of home expense does not change, but the way you log it does. The flat rate is trivial to record each quarter. The actual-cost method needs your bills captured digitally as they arrive, which is far easier than reconstructing a year of utility statements the following January.