Home office expenses: what UK businesses can claim

Understanding Home Office Expenses

If you run your business from home, you'll likely incur additional costs for things like heating, electricity, and internet. HMRC allows you to claim a portion of these household expenses as business expenses, which can reduce your taxable profit and, consequently, your tax bill.

This applies to various business structures, including:

• Sole Traders: Individuals who are self-employed.
• Partnerships: Businesses run by two or more self-employed individuals (excluding partnerships with companies as partners).
• Limited Company Directors/Contractors: Individuals who are employees or office holders of their own limited company.

The key principle for any expense claim is that it must be incurred "wholly and exclusively" for business purposes. Where an expense has both business and personal use, you can only claim the identifiable business proportion.

Methods for Calculating Home Office Expenses

The method you use to calculate your home office expenses depends on your business structure.

For Sole Traders and Partnerships

Sole traders and partnerships (without companies as partners) have two main options:

1. Simplified Expenses (Flat Rate): This method uses HMRC-set flat rates, removing the need for detailed calculations of actual costs.

• You can use simplified expenses if you work from home for 25 hours or more per month.
• The flat rates for the 2026/27 tax year are:
• £10 per month for 25 to 50 hours of home working.
• £18 per month for 51 to 100 hours of home working.
• £26 per month for 101 hours or more of home working.
• This flat rate covers general household costs like heating and electricity. It does not include telephone or internet expenses, which you can claim separately based on actual business use.
• While simpler, this method may not always be the most tax-efficient if your actual costs are higher.

1. Actual Costs Method: You calculate the actual business proportion of your household running costs.

• This involves identifying all relevant household bills (e.g., electricity, gas, water, council tax, broadband, buildings insurance, and a proportion of mortgage interest if applicable).
• You then apportion these costs based on the percentage of your home used for business and the time it's used for business. For example, if one room out of five is used for business, and it's used for business 40% of the time, you would claim 20% (1/5) of the variable costs, further adjusted by the time used for business.
• Fixed costs, like mortgage interest or council tax, are generally apportioned by the area used for business, as these costs would be incurred regardless of business use.

For Limited Company Directors and Contractors

For the 2026/27 tax year, there are significant changes for employees, including company directors, regarding personal claims for working from home expenses. Employees can no longer personally claim tax relief for unreimbursed household expenses incurred from working at home.

However, your limited company can still reimburse you for legitimate additional costs. There are generally three ways your company can handle home office expenses:

1. Company-Paid Home Office Allowance: Your company can pay you a flat rate to cover additional household costs.

• The company can pay a tax and National Insurance (NI) free allowance of up to £6 per week (£26 per month, totalling £312 annually) without needing receipts, provided you work regularly from home and incur additional costs. This is an allowable expense for Corporation Tax.
• If your company reimburses you, this payment is exempt from tax and NI for you, the director, as long as it reflects genuine homeworking costs.

1. Calculating a Proportion of Actual Household Expenses: Your company can reimburse you for a proportion of actual household costs.

• This involves calculating the business proportion of expenses like electricity, gas, internet, phone, and buildings insurance, similar to the sole trader method.
• The company would then reimburse you for this business portion. You must keep detailed records and evidence to justify these claims.

1. Formal Rental Agreement: You can set up a formal rental agreement between yourself and your company.

• Under this arrangement, your company pays you rent for the use of a specific area of your home as an office.
• The rent should be at a market rate and becomes an allowable expense for your company.
• As an individual, you must declare this rental income on your Self Assessment tax return. You can then deduct allowable expenses related to the rented space, such as a proportion of mortgage interest, repairs, and utilities. This method requires careful consideration due to potential Capital Gains Tax implications (see "Common Mistakes").

What You Can (and Cannot) Claim

Generally, allowable home office expenses are those that are additional costs incurred because you are working from home.

Common Allowable Expenses (proportionate business use):

• Utilities: Heating, electricity, and water bills.
• Broadband and Phone: The business portion of your internet and phone bills. If contracts are in the company's name, the full amount can be claimed; otherwise, only the business portion.
• Council Tax: A proportion of your council tax.
• Buildings Insurance: A proportion of your home insurance.
• Mortgage Interest/Rent: A proportion of your mortgage interest (not the capital repayment) or rent.
• Repairs and Maintenance: Revenue repairs to the specific area used for business (e.g., redecorating the office room).
• Office Supplies: Stationery, printer ink, postage, etc..
• Office Equipment: Desks, chairs, computers, and other equipment used exclusively for business. These are typically treated as capital allowances rather than direct expenses.

What You Generally Cannot Claim:

• Fixed Costs (fully): Costs that would be the same whether you worked from home or not (e.g., the full amount of rent or mortgage interest, unless a formal rental agreement is in place and carefully structured).
• Personal Use: Any portion of an expense that is for personal use.
• Commuting Costs: Your normal commute to a permanent workplace is not an allowable expense.
• Capital Improvements: Major structural changes or additions to your home (e.g., building an extension) are generally capital expenditure, not revenue expenses, and have different tax treatment.

How to Claim

Record Keeping: Regardless of the method you choose, keeping accurate records is essential.

• Keep all receipts, invoices, and bills for household expenses.
• If using the actual costs method, document your calculations (e.g., floor plan, hours of business use).
• If using simplified expenses, keep records of the hours you work from home each month.
• You must retain business records for at least 5 years after the 31 January submission deadline for the relevant tax year.

Declaration:

• Sole Traders and Partnerships: You declare your home office expenses on your Self Assessment tax return.
• Limited Company Directors: Your company claims these expenses in its company accounts, reducing its taxable profit for Corporation Tax. If the company reimburses you, it should be processed through the company's payroll or expense system.

Common mistakes

• Claiming 100% of household bills: Unless a specific item (like a dedicated business phone line) is used exclusively for business, you must apportion costs.
• Ignoring Capital Gains Tax (CGT) implications: If you use a specific part of your home exclusively for business, you may lose some Private Residence Relief (PRR) when you sell your home, potentially leading to a CGT charge on that portion. To avoid this, ensure the space has some non-business use, even if minor.
• Limited Company Directors claiming personally: From 6 April 2026, employees (including directors) cannot personally claim tax relief for unreimbursed homeworking expenses. The company must make the reimbursement.
• Claiming more than the flat rate without evidence: If you claim more than the simplified flat rate, HMRC will expect detailed records and a reasonable calculation to support the higher amount.
• Claiming for non-additional costs: Only additional costs incurred due to working from home are generally allowable.