Overview of Home Office Expenses
The rules for claiming tax relief on home office expenses differ significantly for self-employed individuals (sole traders and partners) and company directors, who are treated as employees of their companies. A major change, announced in the Budget 2025, affects the ability of employees and directors to claim these expenses from the 2026-27 tax year onwards.
Rules for Sole Traders and Partnerships (Self-Employed)
Self-employed individuals who work from home can claim a deduction for the costs incurred. There are two methods for calculating this deduction: using a simplified flat rate or claiming a proportion of actual costs.
1. Simplified Flat Rate Method
This method allows for a flat-rate deduction based on the number of hours spent working from home each month on core business activities, such as providing goods or services, maintaining records, and marketing.
Eligibility: This option is available if you work 25 or more hours per month
Rates for 2026-27:
The monthly flat rates are:
£10 for 25 to 50 hours worked from home
£18 for 51 to 100 hours worked from home
£26 for 101 or more hours worked from home
What it Covers: The flat rate covers household running costs, such as heat, light, and power.
Additional Claims: Even when using the flat rate, you can still make separate claims for:
Fixed costs, such as a proportion of Council Tax, mortgage interest, and insurance, where an identifiable part of the home is used for business.
The business proportion of telephone and broadband costs.
2. Actual Costs Method
Alternatively, you can claim a proportion of your actual household costs. This requires calculating the business element of your home expenses, typically by apportioning them based on the area of your home used for business and the amount of time it is used for that purpose.
Claimable Costs Include:
Fixed Costs: A proportion of costs that relate to the whole house, such as:
- Council Tax Mortgage interest (but not capital repayments)
- Rent (if you rent your home)
- Insurance
- General repairs and maintenance (e.g., exterior painting).
A deduction for these costs is generally allowed if part of the home is set aside solely for trade use for a specific period.
Running Costs: Expenses that may vary with business use, such as:
- Heating, lighting, and power
- Cleaning
- Metered water (if there is business use of water)
Repairs: The cost of repairs that relate solely to a part of the house used exclusively for business (e.g., redecorating a home office) is wholly allowable. A proportion of general household repairs can also be claimed.
Telephone and Broadband: These are not treated as household expenses but can be claimed separately. The allowable amount includes the cost of business calls and a proportion of the line rental and broadband connection costs based on the ratio of trade use to total use. If private use of the connection is not significant, the full cost may be claimed.
Exclusive Use: The term “exclusively” or “solely” for business purposes does not necessarily mean a room can never have any other use. HMRC guidance provides an example of an author who uses her living room for business for four hours a day and whose family uses it in the evening. In this case, a deduction is calculated by apportioning the costs by both area and time, demonstrating that mixed-use spaces can still generate a valid claim if a clear business-use period can be identified and evidenced.
Rules for Company Directors (as Employees)
Company directors are treated as employees, and the rules for them are different and more restrictive.
The Position from 6 April 2026
The Budget 2025 announced that the income tax deduction for non-reimbursed homeworking expenses for employees will be removed from 6 April 2026. This means that from the 2026-27 tax year, directors will no longer be able to make a standalone claim for homeworking costs on their Self Assessment tax returns. From this date, tax relief for homeworking expenses will only be available through reimbursement from the employer company.
Employer Reimbursements (Section 316AIΤΕΡΑ 2003)
A company can make tax-free payments to a director for the reasonable additional household expenses they incur while carrying out their duties at home.
This is permitted under the following conditions:
- There must be “homeworking arrangements” in place, meaning an agreement between the director and the company for the director to regularly perform some or all of their duties at home.
- The payment must cover “household expenses,” which are defined as expenses connected with the day-to-day running of the director’s home. This typically refers to the additional costs of heating and electricity.
- The amount must be “reasonable”. An employer can pay a flat rate set by HMRC or reimburse the actual additional costs incurred, which would need to be evidenced.
HMRC guidance indicates that it is difficult for directors, particularly of service companies, to meet these tests. A claim would generally only be accepted where there was an objective requirement to work from home, for example, because the client did not provide premises and there was no other location where the work could be done.
Record Keeping
- Sole Traders (Actual Costs): You must keep records to support your claim, including utility bills, mortgage or rent statements, and the calculations for your apportionment.
- Sole Traders (Flat Rate): You do not need to keep receipts for the costs covered by the flat rate, but you must be able to evidence the number of hours you worked from home.
- Directors: If the company reimburses more than the HMRC-approved flat rate, records of the actual additional costs must be kept to demonstrate that the payment was reasonable and no tax liability arises.
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