Working From Home Tax Relief for the Self-Employed: Simplified vs Actual Costs
If you run your business from home, at least part of your household costs are genuinely business expenses. HMRC gives sole traders two ways to work out how much: a simplified flat monthly rate based on hours worked, or a calculated proportion of your actual bills.
The flat rate method
This uses a fixed monthly amount that scales with how many hours you work from home, and it requires no bill-by-bill calculation:
- 25 to 50 hours a month: a lower flat rate.
- 51 to 100 hours a month: a mid-tier flat rate.
- 101 or more hours a month: the highest flat rate.
This flat rate only covers costs like heating and electricity — it does not include a proportion of mortgage interest, rent or council tax, which you would need to add separately using the actual-cost method if you want to claim them.
The actual costs method
This involves working out your genuine household running costs — heating, electricity, water, mortgage interest or rent, council tax, and home insurance — then applying a reasonable business-use proportion, typically based on the number of rooms used for work and the time spent working in them. It takes more record keeping but can produce a larger, more accurate claim, especially for someone who works from home most of the week in a dedicated room.
A worked comparison
Someone working from home around 120 hours a month would use the top flat-rate band under the simplified method with almost no admin. The same person, using actual costs, might work out that one room of a six-room house used 60% of the time for business gives a higher deductible figure once mortgage interest, council tax and insurance are added in — but only with proper supporting records if HMRC ever asks.
A note for limited company directors
These simplified expense rates are for sole traders and partners, not limited companies. A director working from home can instead claim a modest flat weekly amount from the company tax-free without receipts, or have the company reimburse a calculated proportion of actual household costs under a formal arrangement — the rules and figures differ from the sole trader rates above.
Practical next steps
- Track the number of hours you work from home each month if you plan to use the flat rate method.
- If using actual costs, keep a full year of relevant household bills and a clear note of how the business-use proportion was calculated.
- Decide on one consistent method for the tax year rather than mixing approaches.
- Review your set-up each year — a house move, a dedicated new office room or a big change in hours can change which method suits you best.
