If you're a UK sole trader working from home, HMRC lets you claim a proportion of your household running costs as a business expense — but there are two methods, they produce very different numbers, and the wrong choice can cost you hundreds a year. Worse, one of the methods can quietly create a Capital Gains Tax liability you weren't expecting. Here's how each works, a worked example with real numbers, and a calculator that compares them side-by-side.
What counts as "use of home as office"?
HMRC allows self-employed people to claim a proportion of household running costs when they use their home regularly for business. "Regularly" isn't given a specific threshold, but the simplified flat-rate scheme kicks in at 25 hours per month — roughly six hours a week. Below that level, you can still claim under actual costs, but the proportion is usually too small to be worth the admin.
This guide is for sole traders — self-employed individuals filing a Self Assessment return with an SA103 self-employment page. Limited company directors and employees sit under separate regimes and aren't covered here.
The claim reduces your taxable trading profit, which lowers both your Income Tax and your Class 4 National Insurance bill. For a basic-rate sole trader trading above the personal allowance and the Class 4 threshold, that combined saving is meaningful — a £500 claim typically saves well over £100 in tax and NI.
The two methods HMRC accepts
For sole traders, HMRC publishes two routes:
- Simplified expenses (flat rate) — a fixed monthly amount based on hours worked from home. No bills to apportion. Capped at £312 a year.
- Actual costs (apportionment) — a proportion of your real household bills, based on the fraction of your home used for business and the hours you use it.
You pick one method per tax year — not both for the same claim. You can switch year to year if your circumstances change.
Source: gov.uk/simpler-income-tax-simplified-expenses.
Method 1 — HMRC's simplified flat rate (2026/27 monthly bands)
Under simplified expenses, you claim a flat monthly amount based on the hours worked from home in each calendar month:
| Hours worked at home per month | Flat-rate claim |
|---|---|
| 25–50 hours | £10 per month |
| 51–100 hours | £18 per month |
| 101 or more hours | £26 per month |
If you work from home for fewer than 25 hours in a given month, you can't use simplified expenses for that month. The annual cap is therefore £312 (£26 × 12 months).
You still need a record of hours worked from home each month. HMRC can ask to see it for up to five years after the Self Assessment deadline for that tax year. A spreadsheet or a weekly tally in a notebook is fine — there's no prescribed format.
Who the flat rate suits: sole traders with modest household bills, small flats, or anyone who values zero admin over squeezing the last pound out of the claim.
Method 2 — Actual costs (apportionment)
The actual-costs method is arithmetic. You take each eligible household bill for the year and multiply it by two fractions:
- The space fraction — the number of rooms you use for business, divided by the total number of usable rooms in your home. The convention used by most accountants is to exclude the kitchen, bathroom, and hallways from the count — they count as shared circulation or utility space rather than claimable rooms.
- The time fraction — the hours per week you use the space for business, divided by 168 (the hours in a week).
The formula in one line:
This gives a defensible proportion for any bill that scales with the whole house. Where a bill scales with usage instead of floor area — broadband is the classic example — HMRC accepts a usage-based split. More on that below.
Worked example — actual costs with real numbers
Meet Sarah, a freelance designer. She rents a 2-bedroom flat. Layout: 2 bedrooms + living room + separate dining area = 4 usable rooms (kitchen, bathroom, and hallway excluded). She uses the second bedroom as her studio, 35 hours a week every week of the year.
- Space fraction: 1 ÷ 4 = 25%
- Time fraction: 35 ÷ 168 = 20.83%
Applying both fractions to each apportionable bill:
| Bill | Annual cost | Business share |
|---|---|---|
| Rent | £13,200 | £687.50 |
| Council tax | £1,500 | £78.13 |
| Electricity | £780 | £40.63 |
| Gas | £660 | £34.38 |
| Contents insurance (business-use element) | £180 | £9.38 |
| Apportioned subtotal | £850.00 | |
| Broadband (40% usage split) | £420 | £168.00 |
| Total actual-costs claim | £1,018.00 |
Compare to Sarah's maximum simplified claim: she averages 152 hours/month → top band → £26 × 12 = £312.
Actual costs beats simplified by around £706 a year.
Note on broadband: HMRC doesn't publish a prescribed formula. The convention is to estimate a reasonable business-vs-personal usage split. Sarah estimates her work accounts for roughly 40% of the household's broadband usage — the key is keeping a short note explaining how you arrived at the percentage.
Note on mortgages: only the interest element of mortgage payments is claimable, not the capital repayment. If you're on a repayment mortgage, your monthly statement splits the two. Your lender's annual mortgage interest certificate is the cleanest source.
⚠ The exclusive-use trap (CGT and business rates)
This is the section most home-office guides skip. It's also the one that can cost you thousands later.
If you designate a room as used exclusively for business, two things can happen that don't happen under proportional use:
Capital Gains Tax on your main home
When you sell your main residence, Private Residence Relief (PRR) normally exempts the entire property from Capital Gains Tax. If any part of the home has been used exclusively for business — never for any personal purpose — PRR is restricted to the non-business portion. The gain attributable to the business-only room becomes taxable.
On a house that's gained £200,000 in value over your ownership, losing PRR on a quarter of the property could expose £50,000 to CGT. Depending on your rate band and the residential CGT rate in force when you sell, that could be a five-figure tax bill — to unlock an income-tax saving that might be worth a couple of hundred pounds a year.
Source: gov.uk/tax-sell-home.
Business rates
If a local council decides a room in your home is used exclusively and intensively for business — a fully kitted-out salon, workshop, or separate-entrance office — it can reclassify that part of the property for business rates. You lose domestic council tax on the affected portion and start paying business rates, which may or may not attract Small Business Rate Relief depending on the rateable value and your circumstances.
Source: gov.uk/introduction-to-business-rates.
The correct framing
The framing that keeps both risks off the table is simple: the room is used for business during business hours, for personal use at other times. Evenings, weekends, occasional guest use, storage — any non-trivial personal use means the room isn't exclusively business.
You still get the proportional business-hours deduction under the actual-costs method. You don't claim a single extra penny by declaring a room exclusive, and you potentially expose the property to CGT and business rates. HMRC's guidance notes this risk, and accountants almost universally advise against exclusive-use framing for owner-occupied homes.
Practical rule of thumb: if you took the business desk out, could you plausibly use the room as a guest bedroom, home gym, or reading nook? If yes, it isn't exclusive — and that's where you want to be.
What you can and can't claim under actual costs
Based on HMRC's Business Income Manual guidance on use of home as office:
Claimable (apportioned by space × time)
- Council tax (proportion — unless the room has been reclassified for business rates)
- Mortgage interest only — not the capital repayment
- Rent
- Buildings insurance
- Utilities — gas, electricity, metered water
- Cleaning and repairs attributable to the business area
Claimable (usage split rather than space × time)
- Broadband (reasonable business-vs-personal split)
- Business telephone calls (itemised, or a proportion of the line rental)
Not claimable
- Food and drink consumed at home
- TV licence
- The capital element of mortgage repayments
- Council tax for any portion already reclassified for business rates
- Contents insurance (unless the policy specifies business use and that element is itemised — check with HMRC or your insurer)
Flat rate vs actual costs — how to decide
Four questions usually settle it:
- How many hours a month do you work from home? Below 25 hours: flat rate isn't available, use actual costs or don't claim. Above 101 hours: the £312 simplified cap often underprices a well-apportioned actual-costs claim.
- How much do you pay on the apportionable bills? If your total annual apportionable bills (council tax + utilities + rent or mortgage interest + insurance) exceed around £6,000, actual costs will usually beat the £312 cap.
- Do you have the records? Actual costs needs 12 months of bills, a room count, and an hours log. Simplified needs only the hours log.
- Are you confident on the exclusive-use line? If you're using a dedicated room and wouldn't consider also using it for personal purposes, read the exclusive-use section above before going down the actual-costs route.
If you're not sure, the calculator below runs both methods on your numbers.
Home office claim — simplified vs actual costs
Live comparison. 2026/27 rules. No data leaves your browser.
⚠ Exclusive-use risk
These numbers suggest the business room may be used exclusively or near-exclusively for work. Before filing an actual-costs claim on this basis, read the exclusive-use section above — it can have two knock-on effects:
- Loss of Private Residence Relief on the business portion when you sell (Capital Gains Tax exposure)
- Possible business-rates reclassification by your local council
⚠ Large-claim sanity check
A claim above £3,000 is substantial. HMRC is more likely to query larger figures — make sure your hours log, 12 months of bills, floor plan, and broadband methodology note are all on file before you submit.
⚠ Simplified not available
Below 25 hours/month, simplified expenses isn't available. You can still use actual costs if your setup qualifies.
Figures are estimates for planning. Keep a monthly hours log and 12 months of bills as supporting evidence. Verify current rules on gov.uk before filing.
How to report it on your Self Assessment (SA103)
The "use of home as office" figure — whichever method you used — goes into the expenses section of your self-employment pages.
- SA103S (short): include the figure inside the total allowable expenses box. Method used can be disclosed in the "any other information" section if you want to pre-empt a query.
- SA103F (full): include it under the relevant expense category — most sole traders include it under "Rent, rates, power and insurance costs." Verify the exact box number on the current SA103F on gov.uk — box numbers shift year to year.
You don't send supporting calculations with the return. You do need to keep them on file.
Source: gov.uk/self-assessment-forms-and-helpsheets.
Record keeping — what HMRC expects
If HMRC opens an enquiry, the paper trail for an actual-costs claim should include:
- 12 months of bills for each apportioned cost (council tax demand, utility statements, mortgage interest certificate, insurance schedule).
- A simple floor plan or sketch showing which rooms are usable and which is the business room.
- An hours log — weekly or monthly — showing business use of the room.
- A short note explaining your broadband/phone split methodology.
Records must be retained for at least five years after the 31 January submission deadline for that tax year. Simplified expenses needs only the hours log, but the five-year retention rule is identical.
Source: gov.uk/self-employed-records.
Frequently asked questions
Can I claim both the flat rate and actual costs in the same tax year?
No. You pick one method per tax year for your use-of-home claim. You can switch year to year — for example, moving house, or scaling up from occasional home-working to full-time — but you can't mix them for the same claim.
Does working from home affect the tax when I sell my house?
Not if you use the room proportionally — business during business hours, personal at other times. Private Residence Relief still covers the whole property. It only changes if you designate a room as used exclusively for business, which restricts PRR and exposes that slice of the gain to Capital Gains Tax when you sell.
Can I claim my full broadband bill if I need it for work?
Only if the line is a dedicated business line with no personal use — rare for home broadband. The standard approach is a reasonable business-vs-personal percentage of the bill. HMRC doesn't publish a prescribed figure; 30%–50% is common for full-time home workers. Keep a note of how you arrived at your percentage.
How do I calculate business hours if my schedule varies?
Keep a weekly tally in whatever format suits you — spreadsheet, calendar, notebook. At year-end, sum the weeks and work out the monthly average. For simplified expenses, what matters is which hour band each calendar month falls into; for actual costs, the annual total drives the time fraction.
Do I need to tell HMRC which method I'm using?
You don't declare the method on SA103 itself. If HMRC opens an enquiry, you tell them then. Keep the calculation sheet on file so you can hand it over in one step.
Can I switch between flat rate and actual costs year to year?
Yes. You pick the method at the point of filing each year's return. Many sole traders start on simplified expenses and switch to actual costs once their bills or work-from-home hours grow.
Is the £312 annual cap the maximum I can claim?
Only under simplified expenses. Under actual costs there's no fixed ceiling — the limit is whatever your apportioned bills come to. Sarah's worked example above totals £1,018, and larger homes with higher bills and a full rent or mortgage-interest claim can apportion considerably more.