If you run your business from your spare room, your kitchen table, or a converted garage, part of your household running costs is a legitimate business expense. Claiming it reduces your taxable profit, which cuts both your Income Tax and your Class 4 National Insurance.
The catch is that HMRC gives you two ways to claim, and they can produce very different numbers. One is quick. The other is usually more generous but needs a bit of record-keeping.
This guide is for sole traders and partners (not limited company directors, who follow different rules). We'll explain both methods, show an illustrative worked example with current figures, and give you a simple way to decide which one is right for you.
<h2 id="who-can-claim">Who can claim working from home costs?</h2>
You can claim a proportion of your home running costs if you're self-employed and you genuinely do some of your work from home. That covers a lot of people: freelance designers, consultants, engineers, writers, bookkeepers, tradespeople doing their admin and quoting from home, and plenty more.
Both methods below are open to sole traders and to business partnerships where none of the partners is a limited company. If you trade through a limited company, simplified expenses don't apply to you and the rules are different, so this guide isn't the one for you.
The expense has to be for business use. You can't claim for the parts of your home you use privately, and you can't claim costs that don't change because you work from home (more on that below).
<h2 id="flat-rate">What is the flat rate method?</h2>
The flat rate is HMRC's "simplified expenses" approach. Instead of adding up your bills and working out a business share, you claim a fixed monthly amount based on how many hours you work from home that month.
For 2025/26 the rates are:
| Hours worked from home per month | Flat rate you can claim per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 or more | £26 |
You need to work at least 25 hours a month from home to use it. Below that, this method isn't available.
The big appeal is simplicity. You don't have to keep utility bills or split costs room by room. You just log your hours and apply the rate.
There's one important limit. The flat rate covers things like heating, electricity, and household use. It does not include your phone and broadband. You can still claim the business proportion of those bills separately, on top of the flat rate, so don't forget to add them in.
<h2 id="actual-costs">What is the actual costs method?</h2>
The actual costs method means working out the real business share of your household running costs. HMRC expects you to use a reasonable basis to split each cost, then apply that split.
The costs you can apportion typically include:
- Heating and electricity
- Council Tax
- Rent, or the interest element of your mortgage
- Internet and telephone
- Sometimes water and home insurance, where there's a clear business element
HMRC suggests dividing your costs by a sensible measure, usually the number of rooms you use for business and the amount of time you spend working in them. So if one room out of several is your office, and you only use it for business on working days, both of those factors reduce the claim accordingly.
This method takes more effort, but for many people it produces a noticeably bigger deduction than the flat rate, especially if your home is expensive to run or you work from home full time.
<h2 id="worked-example">Flat rate vs actual costs: a worked example</h2>
Illustrative example. Priya is a self-employed graphic designer trading as a sole trader. She works from home five days a week and uses one room in her five-room home as her office. Her figures for 2025/26 are made up for illustration only.
Her annual household running costs that she's allowed to apportion (heating, electricity, Council Tax, and rent) come to £6,000. Her broadband costs £360 a year, and she estimates half of her usage is for the business.
Actual costs method
First, split the £6,000 by rooms. One office room out of five gives £6,000 ÷ 5 = £1,200.
Then adjust for time. She uses that room for business five days out of seven, so £1,200 × 5 ÷ 7 = £857 (rounded).
Add the business share of broadband: £360 × 50% = £180.
Total actual costs claim: £857 + £180 = £1,037.
Flat rate method
Priya works well over 101 hours a month from home, so she claims £26 a month: £26 × 12 = £312.
She adds the same business share of broadband, because the flat rate doesn't cover it: £312 + £180 = £492.
The difference
The actual costs method gives Priya £1,037 against £492 on the flat rate. That's £545 more deducted from her profit.
Priya's profits sit in the basic rate band, so each extra £1 of expense saves her 20% Income Tax plus 6% Class 4 National Insurance, which is 26% combined. So £545 × 26% = about £142 less tax for the year. The actual costs method wins for her, and the extra paperwork is worth it.
The combined basic rate Income Tax (20%) and Class 4 National Insurance main rate (6%) figures used here are the 2025/26 rates. The result would be larger again for someone whose profits fall in the higher rate band.
<h2 id="how-to-decide">How do I decide which method to use?</h2>
There's no single right answer. It depends on your home and how you work. Here's a quick way to choose:
- Estimate the actual costs claim first. Add up the household running costs you can apportion, split them by rooms used for business, then by the time those rooms are used for work. Add the business share of phone and broadband.
- Work out the flat rate claim. Take your usual monthly hours, find your band in the table above, multiply by the months you qualify, then add phone and broadband on top.
- Compare the two numbers. Whichever gives the larger allowable deduction is usually the one to pick, as long as you can support it with records.
- Weigh up the admin. If the actual costs figure is only slightly higher, the flat rate's simplicity may be worth the small difference. If it's meaningfully higher, the records are worth keeping.
In practice, the mistake we most often see is people defaulting to the flat rate because it's easy, without ever checking whether actual costs would beat it. For full-time home workers with higher household bills, it frequently does.
You can also use HMRC's free simplified expenses checker to compare the two for your own numbers. If you'd rather not work it out alone, our self-assessment service can run both methods and claim the one that leaves you better off.
Want to claim the right way and keep more of your profit? Book a free 20-minute call with a Zmartly accountant and we'll check your working-from-home claim for you. Talk to a Zmartly accountant.
If you want a feel for the overall tax position before you dig into the detail, our self-employed tax calculator gives you a quick estimate of Income Tax and National Insurance on your profits.
<h2 id="records">What records do I need to keep?</h2>
For the flat rate, keep a simple record of the hours you work from home each month. A spreadsheet or diary is fine. You're proving which band you fall into, so consistency matters more than precision to the minute.
For actual costs, keep your utility bills, Council Tax statements, rent or mortgage interest figures, and broadband and phone bills. Note the basis you used to split each cost (how many rooms, how many days a week) so you can show your working if HMRC ever asks.
Good day-to-day records make either method painless at year-end. If keeping on top of receipts and bills isn't your favourite job, our bookkeeping service keeps everything tidy and ready for your return.
Whatever you decide, this is one of several reliefs that benefit from a practitioner's eye. Sole traders, consultants, and creative freelancers often leave money on the table here, so if you work mainly from home it's worth getting the claim right.
<h2 id="faqs">Frequently asked questions</h2>
Can I claim a proportion of my mortgage if I'm self-employed?
You can claim a business proportion of your mortgage interest under the actual costs method, but not the capital repayment part. The flat rate method doesn't let you claim any mortgage cost separately, because it replaces household running costs with a fixed amount.
Does the flat rate include my phone and broadband?
No. HMRC's flat rate for working from home does not include telephone or internet. You can claim the business proportion of those bills separately, on top of the flat rate.
How many hours do I need to work from home to use the flat rate?
You must work at least 25 hours a month from home. The amount you can claim then steps up: £10 a month for 25 to 50 hours, £18 a month for 51 to 100 hours, and £26 a month for 101 hours or more, for 2025/26.
Can I switch between the flat rate and actual costs each year?
Yes. You're not locked in. You can choose whichever method gives the better result for a given tax year, as long as your records support the claim you make.
Will claiming part of my home affect Capital Gains Tax when I sell?
If a room is used exclusively for business, part of the gain on sale could fall outside Private Residence Relief. In practice, keeping some personal use of any room you claim for usually avoids this. It's worth a quick chat with an accountant if you're claiming a dedicated office.
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