Working from home: flat rate or a share of your actual bills?

If your kitchen table, spare room or garden office is where your business actually happens, part of the cost of running your home is a legitimate business expense. HMRC offers the self-employed two routes to claim it: a no-questions flat rate, or a calculated share of your real household costs. They suit different situations, and unlike the vehicle-expenses choice, you can revisit this one each year — so it is worth knowing both.

Method one: the flat rate

Under simplified expenses, you claim a fixed monthly amount based on how many hours you work from home on your business each month. You need to average at least 25 hours a month to use it at all. The current bands are:

• 25 to 50 hours a month — £10 per month
• 51 to 100 hours a month — £18 per month
• 101 hours or more — £26 per month

These figures have been stable for years, but check the current rates on GOV.UK before relying on them. The hours can vary month by month — you apply whichever band each month falls into.

The appeal is obvious: no bills to gather, no apportionment to defend, just a note of your hours. The limitation is equally obvious: even at the top band, the claim is modest. If your home is your main place of work, the flat rate often undervalues reality.

One detail people miss: the flat rate covers household running costs only. Your phone and broadband are not included, so you can claim the business proportion of those separately, under either method.

Counting your hours honestly

The hours that count are hours spent working on the business at home — and that is broader than billable work. Writing quotes, invoicing, bookkeeping, ordering materials, business calls and marketing all count. A tradesperson who is on site all day but spends evenings pricing jobs and doing paperwork may comfortably clear 25 hours a month without noticing. Keep a simple note of your pattern for a typical month or two; you do not need a stopwatch, just a basis you could explain.

Method two: a share of actual costs

The alternative is to claim a reasonable business proportion of the real costs of your home:

• rent, or the interest element of mortgage payments (never the capital repayment)
• council tax
• gas and electricity
• water, where the business genuinely uses it
• home insurance
• cleaning

There is no single prescribed formula; the requirement is a method that is reasonable and consistently applied. The most common approach uses rooms and time. Illustratively: a home has five usable rooms (ignoring kitchen and bathrooms); one is used as an office for around half the hours in a week. A reasonable starting point might be one-fifth of each bill, halved to reflect part-time use — so 10% of household running costs. Your own facts might justify more or less; the point is to be able to show your working. Costs that relate solely to the business — a repair to the office itself, say — can be claimed in full.

The exclusive-use warning

Do not use any room exclusively for business. It sounds like the diligent thing to do, but a room given over wholly to business use can affect the Capital Gains Tax relief (private residence relief) that normally makes the sale of your home tax-free. The fix is easy and honest: keep some genuine personal use — the office is also the spare room, the sewing room, where the exercise bike lives. If your setup is unusual — a purpose-built garden office, a converted outbuilding — take advice before selling.

Which method suits whom

• Choose the flat rate if you work from home comparatively few hours, your household bills are modest, or you simply do not want the record-keeping. It is also the safe harbour when your circumstances are hard to apportion — shared houses, lodgers, frequent moves.
• Calculate actual costs if home is your main workplace, your bills are substantial, or you rent somewhere expensive. The extra paperwork is usually a few minutes a month once your bills arrive digitally.
• Run both numbers once. The comparison takes ten minutes with a year of bills and tells you which side of the line you live on. You are allowed to choose differently in a future year if your working pattern changes.

Whichever you choose, keep the underlying evidence: bills, a note of your hours, and the one-paragraph explanation of your apportionment method. Under Making Tax Digital these records will need to be digital anyway, so a photographed bill filed the day it arrives is the habit to build now.

If you run a limited company

Everything above is for sole traders and partners. Directors of limited companies are employees of their company, and different rules apply — typically a small weekly flat rate that HMRC sets for employees, or a formal home-working arrangement with the company. The principles rhyme but the mechanics differ; do not copy sole-trader claims into a company.

Where we come in

Use-of-home is a classic "surfaced relief": easy to under-claim out of caution, easy to over-claim out of optimism. On our platform your household bills and working pattern feed a drafted claim, the double-entry behind it is checked mechanically, and a person confirms the method is reasonable before anything reaches a return — AI drafts. AgentLedger validates. People approve.

If you would like your home-working claim put on a defensible footing, Ask for Details.