How To Claim Use Of Home As Office: Simplified Flat Rate vs Actual Costs

If you work from home, whether as a sole trader, a contractor through your own limited company, or a partner in a partnership, you can claim a deduction for the business use of your home. HMRC gives you two routes: a simplified flat rate (hours-based for sole traders and partnerships; £6 per week for limited company directors) or a detailed calculation based on your actual costs. The right choice depends on how much of your home you use for business and what your actual bills look like.

This article covers both methods for the 2025/26 tax year, with worked examples and the record-keeping requirements for each. We are specialist accountants and work with UK businesses of every shape, from sole traders in Sheffield to limited companies in London.

The Simplified Flat Rate Method

For sole traders and partnerships, HMRC's simplified flat rate for home office use is based on the hours you work from home each month. You do not need to provide receipts, calculate floor areas, or split your broadband bill. The monthly rates are:

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

You add up your monthly claims and enter the total on your tax return as a deduction against your trading profits. (Limited company directors can claim £6 per week from their company tax-free: see the director section below.)

This method is designed for people who use part of their home for business tasks but do not have a dedicated room used exclusively for work. If you answer emails from the kitchen table, take client calls from the living room, or do your bookkeeping on a laptop in the spare bedroom that also stores your suitcases, the simplified flat rate suits you.

You must work at least 25 hours from home in a month to use the simplified rate for that month. Months where your business use falls below 25 hours do not qualify for the flat rate, but you can still claim actual additional costs for those months. If you work 101 hours or more every month for 12 months, you can claim £26 per month, giving £312 for the year. If your hours vary month to month, total your claims at the applicable rate for each month.

The simplified rate applies per person, not per business. If you and your spouse both run separate businesses from the same home, you each claim at your own applicable rate based on your own hours. If you run two different trades from home, you claim once only, based on the total hours you work from home across all your businesses.

Who Should Use the Simplified Method

Use the simplified flat rate if your actual costs are low or you do not want the administrative hassle of calculating and justifying actual costs. It is also a good choice if you rent a room or live in shared accommodation where you cannot easily isolate your share of household bills. You cannot use the simplified rate for any month in which you work fewer than 25 hours from home.

For most sole traders working from home 25 or more hours per month, the simplified rate is easy to operate and HMRC will not challenge it. If your hours fall below 25 in a given month, the actual costs method (covered below) is your only option for that month.

The Actual Costs Method

If your business use of home is more substantial, you can claim a proportion of your actual household costs instead of the flat rate. This typically yields a higher deduction, but it requires more record keeping and a defensible calculation methodology.

You can claim a proportion of the following costs:

• Mortgage interest (not capital repayments) or rent
• Council tax
• Water rates
• Gas and electricity
• Buildings and contents insurance
• Broadband and telephone line rental
• Cleaning and repairs to the room you use

You cannot claim a proportion of mortgage capital repayments, food, or general home improvements that benefit the whole property.

How To Calculate Your Claim

You need a fair and reasonable method for apportioning costs. The most common approach is the room count method.

Count the total number of rooms in your home (excluding bathrooms, hallways, and kitchens unless you use them exclusively for business). Divide by the number of rooms you use for business. Then multiply each household bill by that fraction. Then multiply by the proportion of time you use the room for business.

Here is a worked example. A freelance graphic designer in Bristol lives in a two-bedroom flat. She uses the second bedroom as her office, working 35 hours per week from home. The flat has four rooms: living room, kitchen, bedroom, and office. She uses the office 100% for business.

Her annual costs:

• Rent: £9,600
• Council tax: £1,800
• Gas and electricity: £1,200
• Broadband: £360
• Contents insurance: £120
• Total: £13,080

Room count: 4 rooms. One room used exclusively for business. Business fraction: 1/4 = 25%.

Claim: £13,080 x 25% = £3,270.

Compare that to the £312 she would claim using the simplified flat rate (£26 per month at 101+ hours, for all 12 months). The actual costs method gives her an extra £2,958 in deductions, saving her £592 in income tax at the basic rate (20%) or £1,183 at the higher rate (40%). The extra record keeping is clearly worth it.

When the Room Is Not Exclusive

If your office doubles as a guest bedroom or a storage room for personal items, you need to factor in the proportion of time it is used for business. A common approach is to calculate business use on an hourly basis.

Example: A consultant in Manchester uses the dining room as his office 30 hours per week, 48 weeks per year. The room is used for personal purposes the rest of the time. The house has 6 rooms. Business fraction: 1/6 = 16.67%. Time fraction: 30 hours out of 168 hours per week = 17.86%.

Total household costs: £15,000. Claim: £15,000 x 16.67% x 17.86% = £446.

In this case, the simplified flat rate (up to £312 a year for those working 101 or more hours from home each month) is close enough that many people choose the simpler option. The difference is £134 in deductions, saving £27 in tax at 20% or £54 at 40%. That may not be worth the calculation time.

Limited Company Directors and Home Office Claims

If you are a director of your own limited company and work from home, the rules are slightly different. Your company can reimburse you for home office costs, or you can claim a deduction on your personal self assessment return if you use your home for company business.

The company can pay you up to £6 per week (£312 per year) tax free and without the need for receipts, under HMRC's benchmark rates. This is treated as a tax deductible expense for the company and is not a taxable benefit for you. The company simply processes it through payroll or as a reimbursement.

If your actual costs are higher, the company can reimburse you the exact amount of additional household costs incurred because of the business use. You need to calculate this using the actual costs method above, and keep the records at the company. The reimbursement is tax deductible for the company and not taxable for you, provided it does not exceed the actual additional costs.

For a detailed breakdown of how director salary and dividend planning interacts with home office claims, see our director pay and dividends guide.

What HMRC Expects You To Keep

If you use the simplified flat rate (sole traders) or the £6 per week director rate, you need no receipts. You just need a note in your records confirming the hours you worked from home each month (for the simplified rate) or the weeks claimed (for the director rate). A simple diary entry or calendar log is sufficient.

If you use the actual costs method, keep:

• Copies of your household bills (gas, electricity, broadband, rent, council tax)
• A floor plan or room count showing how you calculated the business proportion
• A log of the hours you worked from home, especially if the room is not exclusive
• The calculation itself, showing each step

HMRC can ask for this evidence if they enquire into your tax return. If you cannot produce it, they may disallow the claim and charge interest and penalties. The risk is low for small claims, but it exists.

Claiming on Your Tax Return

Sole traders and partners claim home office costs on the self employment pages of the self assessment return (SA103). The amount goes in the "use of home as office" box under allowable expenses. For the 2025/26 return, this is straightforward if you use accounting software like FreeAgent, Xero, or QuickBooks, which have dedicated fields for this expense.

If you are a sole trader or partner using the simplified flat rate, add up your monthly claims (£10, £18, or £26 depending on your hours that month) and enter the total. If you use actual costs, enter the calculated figure.

Limited company directors claim home office costs through the company's accounts, not through personal self assessment. The company enters the reimbursement as an expense in its profit and loss account, and processes it through payroll or as a director's expense claim.

If you are unsure which method applies to your situation, contact our team. We can review your specific circumstances and confirm the correct approach for your 2025/26 return.

Common Mistakes

The most common mistake is claiming both the simplified flat rate and actual costs in the same year. You choose one method for the whole tax year. You cannot mix them.

The second most common mistake is claiming a proportion of mortgage capital repayments. Only mortgage interest is allowable. Capital repayments reduce your loan balance and are not a deductible expense.

The third mistake is claiming for a room that is used exclusively for business but also has personal items stored in it. If your "office" contains your child's toys, your Christmas decorations, or your personal filing cabinet, it is not exclusive. You need to apply the time apportionment.

When To Use an Accountant

The simplified flat rate is easy enough that most people can handle it themselves. The actual costs method is also manageable if your situation is straightforward. But if you have a complex home layout, multiple business activities, or a home office that is also used by employees, the calculations get harder.

If your home office claim is over £1,000, or if you are unsure about the exclusivity of the room, speak to a qualified accountant. We are experienced accountants and deal with home office claims regularly for clients across all sectors. A small fee for a review can save you a much larger tax bill if HMRC challenges your claim.

Final Point on the Flat Rate

The simplified flat rates for sole traders have not changed for years. They are deliberately set at a level that suits light home working. If your actual costs are higher, do the calculation. The extra paperwork takes an hour once a year and can save you hundreds of pounds in tax.

If your actual additional costs are lower than the applicable flat rate amount, use the simplified rate anyway. You are not required to prove your actual costs reach the flat-rate figure. The flat rate is an option, not a cap.

For more guidance on running your business finances, visit our business fundamentals page or browse our bookkeeping and compliance articles.