Home Office Expenses for Sole Traders: Flat Rate vs Actual Costs

Why Claiming Home Office Expenses Matters

Working from home is one of the most common situations for UK sole traders, yet many either miss this deduction entirely or claim it incorrectly. Getting it right means reducing your taxable profit and paying less Income Tax and National Insurance. HMRC offers two legitimate methods: the simplified flat rate and the actual costs method. Neither is automatically better — it depends on your home, your hours, and your bills.

Method One: The Simplified Flat Rate

HMRC's simplified expenses scheme lets you claim a fixed monthly amount based purely on how many hours per month you work from home. There is no need to calculate floor areas, apportion bills, or keep utility receipts specifically for this claim. The current rates (as of the 2026–27 tax year) are:

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

For example, if you consistently work more than 101 hours from home each month, you can claim £26 x 12 = £312 per year without any further calculation. You simply need a record of your hours worked at home, such as a spreadsheet or diary log.

The flat rate is straightforward and low-risk, but it is deliberately conservative. If you have high household bills or use a significant portion of your home for work, the actual costs method will almost certainly give you a larger deduction.

Method Two: Actual Costs Using Square Footage

This method requires more effort but can produce a substantially higher claim. The principle is simple: you work out what proportion of your home is used for business, then apply that proportion to your allowable household expenses.

The most common way to calculate the business proportion is by square footage. Divide the floor area of the room or rooms you use for work by the total floor area of your home. For instance, if your home office is 12 square metres and your home is 80 square metres in total, your business use is 15%.

You then apply that percentage to eligible household costs, which can include:

• Rent (if you rent your home) or mortgage interest — though be cautious, as claiming mortgage interest can trigger a capital gains tax charge on that portion when you sell
• Council Tax
• Heating and electricity
• Broadband (the business-use portion)
• Buildings and contents insurance
• Water rates

If your total annual household bills come to £9,000 and your business proportion is 15%, your claim would be £1,350 — significantly more than the flat rate would provide.

You should also factor in time apportionment if a room is used for both personal and business purposes. If your office doubles as a spare bedroom, you would reduce the claim further to reflect the hours it is genuinely used for work versus personal use.

Which Method Should You Choose?

The flat rate suits sole traders who work moderate hours from home, have modest bills, or simply want a hassle-free claim. The actual costs method suits those who work extensively from home, pay high rent or utility bills, or dedicate a specific room almost exclusively to their business.

You cannot combine both methods for the same tax year. You must pick one and apply it consistently throughout the year when you complete your Self Assessment return.

Keeping the Right Records

Whichever method you choose, HMRC expects you to keep supporting records. For the flat rate, log your monthly hours worked from home. For actual costs, retain your utility bills, a copy of your floor plan or measurements, and a note of how you calculated the apportionment. Keep these records for at least five years after the relevant Self Assessment deadline.

If you are unsure which method produces the better outcome for your situation, run the numbers for both before you file your return. A few minutes of calculation could save you a meaningful amount of tax each year.