Is utilities
tax deductible?

Partly. Utility bills for business premises are allowable (GOV.UK), and if you work from home you can claim a share of heating and electricity, or the flat rate instead (GOV.UK). Landlords can deduct gas, electricity and water they pay for a let property (GOV.UK).

Utilities follow the premises. Bills for a shop, workshop or unit are fully allowable. Bills for a home you also work from are allowable only for the business share, which you can work out or replace with a flat rate. For landlords, utilities are allowable when the landlord, not the tenant, pays them.

Is utilities tax deductible?

The HMRC rule

Rent, business and water rates, utility bills, property insurance and security for business premises are allowable. The rule comes from Office, property and equipment, If you work from home, Work out your rental income when you let property.

GOV.UK lists utility bills among the premises costs a sole trader can claim (office, property and equipment), and heating and electricity among the costs you can apportion when you work from home (expenses overview). The working-from-home flat rate covers heat, light and power (simplified expenses). For landlords, water rates, gas and electricity paid by the landlord are allowable (landlords).

When you can claim it

• Electricity, gas, oil and water for business premises.
• A reasonable share of home utilities for the part of the home used for business, when working it out.
• Utilities a landlord pays for a let property.
• Standing charges, for the business share.

When you cannot

• The private share of home utilities.
• Actual heat and power and the flat rate for the same period.
• Utilities a tenant pays directly.
• Utilities for a second home used privately.

What to claim instead

If apportioning home energy bills seems artificial, use the flat rate: £10, £18 or £26 a month depending on hours worked at home. It covers heat, light and power, and needs only a record of hours.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For utilities, the deciding rule is rent, rates, power and insurance for business premises: rent, business and water rates, utility bills, property insurance and security for business premises are allowable.

Worked example: GOV.UK’s electricity bill

GOV.UK's example: a four-room home with one room used only as an office, and an electricity bill of £1,120 a year. If rooms use equal electricity, the business share is £280. If the office is used for business one day a week, the claim is £40 (£280 divided by 7).

Apportioning by rooms and time

The usual method combines space and time: the share of the home used for business, then the share of the time it is used for business. HMRC's own examples use floor area or rooms for space, and working hours for time, and accept a reasonable estimate where the amount is small. Heating-heavy equipment, such as a kiln or a server, may justify a larger share, if you can show it.

Businesses with heavy energy use

For businesses where energy is a direct cost, such as bakers, potters or launderettes, electricity and gas for the business premises are simply allowable in full. Where the business operates from home with heavy equipment, a sub-meter for the equipment is the best evidence of the business share.

Landlords and bills-inclusive lets

In an HMO or an all-inclusive let, the landlord pays the utilities and recovers them through the rent. The rent is income and the utilities are an allowable expense. In a standard let, the tenant pays, so there is nothing for the landlord to claim except during void periods between tenancies.

VAT and energy

Domestic energy carries VAT at the reduced rate, and business energy at the standard rate unless usage is low. If you are VAT registered, you reclaim VAT only on the business share of energy and record the net cost. If not, the full cost, including VAT, is the figure you apportion.

Where it goes

Utilities go in rent, rates, power and insurance costs, box 21 on the full self-employment pages. A landlord's utilities go in box 24 on the UK property pages. In Making Tax Digital, both are premises running costs in the matching category.

If you are a landlord

Landlords can deduct gas, electricity and water rates they pay for a let property, including during void periods and for all-inclusive or HMO lets (GOV.UK). Utilities a tenant pays directly are the tenant's cost and nothing to do with the landlord's return.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under rent, rates, power and insurance costs (SA103F box 21 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

For a landlord, it belongs in rent, rates, insurance and ground rents (property) (SA105 box 24 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the household bills you apportion, a note of the method (rooms, floor area, hours) and the figures behind it, and a simple record of the hours you work at home if you use the flat rate. Recheck the method if the way you work changes, for example if you move into a unit.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming the whole household energy bill.
• Claiming the flat rate and actual heat and power for the same months.
• Landlords claiming utilities the tenant paid.

Related expenses

This item sits in the rent, rates, power and insurance costs category, alongside business rates, council Tax, garden office, home and landlord insurance, mortgage interest, rent, service charges and solar panels. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.