Working from home as a sole trader: what you can claim

The basic rule: "wholly and exclusively"

HMRC's general rule for allowable expenses is that they must be wholly and exclusively for business purposes. Your home, almost by definition, is used for personal purposes too — which means you can't simply deduct a chunk of your mortgage or energy bill as a business expense.

The exception is that HMRC allows you to apportion costs where there is a clear business element. Working from home is one of the situations where HMRC explicitly permits this, either through a simplified flat rate or by calculating your actual costs.

Method 1: simplified expenses (flat rate)

If you use cash basis accounting — which is the default for most sole traders — you can use HMRC's simplified expenses flat rate for home working. This removes the need to track actual costs and apportion them.

The rate is based on how many hours per month you use your home for business:

So if you work from home full-time (roughly 8 hours a day), you'd claim £26 per month — £312 per year. No receipts are required. You just need to record your hours and use the appropriate rate.

The flat rate is convenient, but it won't always be the most tax-efficient option. If you have high household costs and spend a significant portion of your working hours at home, calculating actual costs may result in a larger deduction.

Method 2: actual costs

The actual costs method involves working out the business proportion of your home running costs and claiming that figure. It takes more effort than the flat rate, but can produce a meaningfully larger deduction — particularly if you work from home most of the week.

Step 1: identify your home running costs

You can include:

• Rent (if you rent) or mortgage interest (not capital repayment, if you own)
• Council tax
• Gas and electricity
• Broadband and home phone (the proportion used for business)
• Buildings and contents insurance (the business proportion)

Step 2: calculate the business proportion

There are two common approaches:

• By rooms: If your home has 5 rooms and you use 1 exclusively for work, you could claim one-fifth (20%) of running costs. Rooms used only for business vs rooms used for both personal and business purposes will affect this calculation.
• By hours: Calculate what fraction of the day and week your workspace is used for business, and apply that fraction to costs like heating and lighting.

HMRC doesn't prescribe a single method — they expect you to use a fair and reasonable basis and be consistent from year to year.

A note on owning your home

If you own your home and use the actual costs method, you can claim the business proportion of mortgage interest (not the capital repayment element). This is a legitimate business expense.

However, be aware that if part of your home is used exclusively for business — meaning a dedicated room that you never use personally — HMRC may treat that portion as outside Private Residence Relief. This could create a small Capital Gains Tax liability when you sell. The risk is typically low if you use a shared space (like a dining table or spare room that doubles as a guest room), but worth discussing with an accountant if you're setting up a dedicated office.

Using the simplified flat rate avoids this issue entirely, since it's not tied to a proportion of your home.

Keeping records digitally under MTD

Under Making Tax Digital for Income Tax, all sole traders earning over £50,000 must keep digital records of their business income and expenses. Home working costs are an allowable expense and must be recorded like any other business cost.

If you use the flat rate, record it as a monthly business expense in your MTD software — the same as you would for any other cost.

If you use actual costs, keep a record of your calculation: the total household costs, your apportionment basis, and the resulting business deduction. You don't need to send this to HMRC in your quarterly updates, but you'll need it if there's ever an enquiry.

Frequently asked questions