If you work from home, you may be able to claim a portion of your household bills as a business expense. This can significantly reduce your tax bill. This guide explains the two methods for claiming home office expenses and how to maximise your claim.
For a complete overview of all business expenses, see our guide: Allowable Expenses.
The Two Methods of Claiming Home Office Expenses
There are two methods you can use to claim home office expenses:
- The Flat Rate Method (Simplified Expenses)
- The Actual Cost Method
Method 1: The Flat Rate Method
This is the simplest method. HMRC allows you to claim a fixed monthly amount based on the number of hours you work from home.
| Hours Worked from Home Per Month | Monthly Flat Rate |
|---|---|
| 25-50 hours | £26 |
| 51+ hours | £40 |
Pros of the Flat Rate Method
- Simple: No calculations or records required. Just choose the rate.
- No Receipts: You don’t need to keep receipts for household bills.
- Quick: Easy to calculate and include in your tax return.
Cons of the Flat Rate Method
- Fixed Amount: The claim is capped at the flat rates. You can’t claim more, even if your actual costs are higher.
- Single Claim: You can only claim the flat rate for your ‘main’ place of work. If you have multiple locations, you may need to use the actual cost method.
Method 2: The Actual Cost Method
This method involves calculating a proportion of your total household costs and claiming the business proportion.
Step-by-Step Guide to Calculating Your Claim
- Calculate Your Household Costs: Add up the total costs for the period you’re claiming for. This typically includes:
- Rent or Mortgage Interest: You can claim the interest part of your mortgage payments, not the capital repayment.
- Council Tax: The total amount.
- Utility Bills: Electricity, gas, water, and heating oil.
- Home Insurance: The premium for buildings and contents insurance.
- Internet and Phone: A proportion of your broadband and landline bills. See our guide on Allowable Expenses for more on this.
- Calculate Your Business Space:
- Number of Rooms: Count the total number of rooms in your home used for business as a proportion of the total rooms. For example, if you use one room out of six for business, you can claim 1/6 (16.67%) of your household costs.
- Square Footage: Alternatively, you can calculate the proportion based on the floor area used for business, divided by the total floor area of your home.
- Apply the Proportion: Multiply your total household costs by your business proportion.
Example Calculation
- Total annual household costs: £12,000 (mortgage interest: £8,000, council tax: £1,500, utilities: £1,500, insurance: £1,000)
- Rooms used for business: 2 out of a total of 8 rooms (25%)
- Annual claim: £12,000 x 25% = £3,000
What You Can’t Claim
- Mortgage Capital Repayments: You can only claim the interest part of your mortgage.
- Council Tax for Sole Use: If you have a room used exclusively for business, you may be able to claim a higher proportion, but you cannot claim 100% of council tax unless the business use is 100%.
- Capital Expenses: You cannot claim the cost of furnishings or renovations under ‘home office expenses’. These may be claimed under capital allowances. See our guide: Equipment Purchases.
Which Method Should You Choose?
| Factor | Flat Rate | Actual Cost |
|---|---|---|
| Simplicity | Very simple | Complex |
| Records Required | None | Receipts and calculations |
| Maximum Claim | Capped | Potentially higher claim |
| Best For | Simple claims | Higher claims |
- Choose the Flat Rate if: You work from home relatively rarely or have low household costs, and you want the simplest option.
- Choose the Actual Cost if: You work from home extensively or have high household costs, and you believe your claim will be higher than the flat rate. However, you need to keep good records and do the calculation accurately.
Record Keeping for Home Office Expenses
If you use the actual cost method, you must keep:
- Receipts: For all your household bills.
- Calculations: A detailed calculation of the business proportion, including how you determined it.
- Evidence: A record of the number of rooms and their use.
How We Can Help
Claiming home office expenses can be complex, especially if you are using the actual cost method. Our ACCA-qualified accountants can:
- Advise you on which method is best for your situation.
- Review your household costs and calculate a justifiable business proportion.
- Ensure your claim is accurate and maximized, reducing your tax bill.
Let us ensure your home office claim is maximized and HMRC-compliant.
📚 Related Guides
• Self-Employed Allowable Expenses
• Equipment Purchases & Capital Allowances
• Record Keeping for Self-Employed
• Cash Basis vs Traditional Accounting
• Self-Employed Tax Return Checklist
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