Working From Home: What Can You Actually Claim?

If you work from home — even part of the time — you may be able to claim a portion of your household costs as a business expense and reduce your tax bill. But the rules are different depending on whether you're a sole trader or a limited company director. Getting it wrong means either paying more tax than you need to, or claiming something you shouldn't.

This guide explains both sets of rules in plain English, including what changed on 6 April 2026.

Why the Rules Are Different

As a sole trader, your business and personal finances are closely linked, so HMRC allows you to claim a share of home costs as long as the expense was genuinely for your business. The test is simply whether the cost was "wholly and exclusively" for the trade.

As a limited company director, you are technically an employee of your own company — which means stricter rules apply. The test is whether the expense was "wholly, exclusively and necessarily" incurred doing your job. That extra word — necessarily — makes it harder to qualify, and the way you claim is also different.

The bottom line: sole traders generally have more flexibility. Directors have to follow a more structured approach.

If You're a Sole Trader

You have two options: a simple flat rate, or a more detailed calculation using your actual costs. It's worth working out both and going with whichever gives you the bigger deduction.

Option 1: The Flat Rate

This is the simpler option. HMRC lets you claim a fixed amount each month based on how many hours you work from home, without needing to dig out bills or keep detailed records.

You need to work from home for at least 25 hours per month to use this.

A few things to know about the flat rate:

• It covers running costs like heating and lighting — it does not cover your phone or broadband. You can claim the business proportion of your phone and broadband bills on top of the flat rate.
• It also doesn't cover fixed household costs like council tax, mortgage interest, or rent. If those costs are significant, you might do better with Option 2.
• You can't use the flat rate if you've already claimed the £1,000 trading allowance — it's one or the other.

Option 2: Your Actual Costs

If you have a larger home, a bigger mortgage, or you work from home a lot, this method usually gives you a higher claim. It takes more effort, but HMRC just asks that your calculation is "fair and reasonable."

Your home costs fall into two groups — fixed costs and running costs — and each is worked out slightly differently.

Fixed costs are things you pay regardless of whether you work from home or not: council tax, mortgage interest (not capital repayments), rent, home insurance, and general repairs and maintenance. Because these don't go up the more you work, you only need to apply a room proportion — not a time element too.

Running costs are things that genuinely increase the more you work from home: gas, electricity, and metered water. For these you apply both a room proportion and a time proportion, because you're actually using more of them.

Here's how to work it out:

Step 1 — Room proportion: Count the number of rooms you use for business and divide by the total number of rooms in your home. If rooms are very different sizes, you can use square footage instead.

Step 2 — Time proportion: Divide the hours you work from home each week by the total hours in a week (168 hours). HMRC's own examples use a daily ratio — hours worked per day divided by 24 — so either approach works, as long as it's consistent and fair.

Step 3:

• For fixed costs (council tax, mortgage interest, rent, insurance, repairs): multiply the annual cost by the room proportion from Step 1 only.
• For running costs (gas, electricity, metered water): multiply the annual cost by the room proportion from Step 1 and then by the time proportion from Step 2.

A note on mortgage interest: If you use the cash basis for your accounts, there's a cap — you can only claim up to £500 per year in mortgage interest and other finance costs.

Phone and broadband: Claim the cost of business calls plus a fair proportion of your line rental. For broadband, claim the proportion that reflects actual business use. There's no restriction on when you took out your broadband contract — unlike directors (see below).

Insurance: If you have a separate insurance policy just for your business equipment, the full cost of that policy is allowable. If business use of your home is covered under your standard home insurance, claim an appropriate proportion of that premium.

Which option should you use?

Run both calculations and claim whichever is higher. If you'd rather not keep detailed records, the flat rate is the safer, simpler choice.

Important Warning: Capital Gains Tax

This is something many sole traders don't think about — and it can be costly if you're not careful.

When you sell your home, you normally don't pay any tax on the profit because your main home is exempt from Capital Gains Tax (CGT). But if part of your home has been used exclusively for business — meaning no personal use at all — that portion loses its tax exemption. When you sell, the gain on that part of the property could be taxable.

The key word is exclusively. If a room is used for both work and personal life — for example, you work at the dining table during the day and use the room in the evenings — then it isn't exclusively for business, and your full CGT exemption is preserved.

The practical advice: avoid setting aside any room purely and only for business. Mixed use (work and personal) protects you from a potential CGT bill when you eventually sell. This is worth factoring in when deciding how much to claim.

Business Rates

Most people who work from home don't need to worry about business rates — you just carry on paying Council Tax as normal. You might need to pay business rates in addition to Council Tax if you have employees working at your home address, if customers regularly visit to buy goods or services, or if you've made significant structural changes to your home for business purposes. If you're unsure, contact the Valuation Office Agency (VOA).

If You're a Limited Company Director

As a director, you're an employee of your company — so you can't just claim a share of your home costs personally. Instead, there are specific ways your company can pay you, or cover costs on your behalf.

The Straightforward Option: £6 Per Week From Your Company

Your company can pay you £6 per week (£26 per month) tax-free and free of National Insurance to cover the extra costs of working from home. This is the simplest and most widely used route, and it's the one HMRC supports.

For this to work:

• There needs to be a genuine homeworking arrangement between you and your company — it doesn't have to be a formal written contract, but it needs to be real and consistent
• You need to work from home regularly — for example, two days at home and three in the office each week counts
• The payments are meant to cover the extra costs you incur because of home working, not your general household bills

Ad hoc or occasional home working doesn't qualify. You need to be doing it as a regular pattern.

One more important point: if your company already has a separate office or business premises and costs are being claimed for it, it becomes very difficult to also justify a home working claim. HMRC requires that there are no adequate employer facilities available — or that attending them daily would be unreasonable because of the distance involved.

If you want to claim more than £6 per week: You can, but you'll need to keep records to show how you calculated the higher amount. The £6 is a guideline — not a ceiling — but anything above it needs to be backed up with evidence.

What the payments can cover:

• The extra gas and electricity used while working from home
• Business phone calls and a proportion of your line rental
• Broadband — but only if you took out the contract specifically because you started working from home. If you already had broadband before, HMRC doesn't treat it as an additional cost
• Any increase in your home contents insurance as a result of the home working arrangement
• Metered water costs where relevant

What the payments cannot cover:

• Mortgage interest or rent — these don't go up because you work from home
• Council tax — a fixed charge that doesn't change
• General insurance premiums that haven't increased
• Flat-rate water charges

The rule of thumb is simple: if the cost would exist whether you worked from home or not, it doesn't qualify.

An Important Change From 6 April 2026

Up until the end of the 2025/26 tax year, directors could claim the £6 per week directly on their own tax return if their company hadn't paid it to them. That option no longer exists from 6 April 2026.

From this tax year onwards, the company must make the payment to you. If your company hasn't been doing this, the time to set it up is now. If you missed out in previous years (up to four years back), you may still be able to make a claim through Self Assessment for those earlier periods.

What About Your Company Paying You Rent?

Some directors consider having their company formally rent part of their home from them as office space. This is technically possible, but it comes with significant downsides and most advisers recommend against it.

Here's the issue:

• You pay tax on the rent. The money your company pays you counts as rental income and goes on your tax return. It's taxed at your marginal rate.
• There's no National Insurance saving. Unlike the £6/week route, this arrangement doesn't offer NIC advantages.
• HMRC will scrutinise the arrangement. Any deal between you and your own company needs to be on genuinely commercial terms. If HMRC considers the rent too high or the arrangement lacking substance, they can challenge it.
• There's a Capital Gains Tax risk. A formal rental arrangement makes it more likely HMRC will treat that part of your home as exclusively used for business — which can restrict your CGT exemption when you sell the property (see the CGT explanation in the sole trader section above).
• The Rent a Room scheme doesn't help here. There's a scheme that lets you earn up to £7,500 a year tax-free from letting rooms in your home — but HMRC explicitly excludes office accommodation from this. Rooms rented out as office space don't qualify, even if the room is sometimes used personally too.

The £6/week route is cleaner, simpler, and lower risk for the vast majority of directors.

Your Company Can Also Provide Equipment

Your company can buy equipment for you to use at home — things like a desk, chair, computer, monitor, or phone — and there's no tax charge on this, as long as:

• The equipment is primarily for doing your job
• Any personal use is not significant
• Ownership stays with the company (if you keep the item personally, it becomes a taxable benefit)

This sits alongside the £6/week allowance — having company-provided equipment doesn't stop you receiving the homeworking payment too.

What No One Can Claim

Whether you're a sole trader or a director, these are never allowable:

• Mortgage capital repayments — paying down your mortgage is not a business expense
• Food and drink consumed while working at home
• The full cost of a room if it's also used personally — only the business proportion counts

Common Mistakes

Using the flat rate without knowing you can also claim phone and broadband on top. These are separate and many people miss them.

Directors thinking they can still self-claim the £6/week on their tax return. From 6 April 2026, this must come from the company. If your company isn't making the payment, you're missing out.

Setting aside a room exclusively for work without considering the CGT consequences. Mixed use is almost always better — it protects your tax-free status when you eventually sell your home.

Sole traders applying the time proportion to fixed costs. Fixed costs like council tax and mortgage interest only need the room proportion — not room multiplied by time. Applying both produces a lower claim than you're entitled to.

Directors trying the rental route without taking advice. The CGT risk and the personal tax implications make this a complex arrangement that needs careful thought before going ahead.

Need Help Working This Out?

If you're not sure which method gives you the best outcome, or you want someone to check that you're claiming correctly, we can help. We work with sole traders and limited company directors across the UK and can make sure you're getting everything you're entitled to — without the risk of overclaiming.

Find out more about our accountancy services, or get in touch for a free consultation.