Operating as a sole trader from home is no longer seen as unconventional. For many people, it offers a practical and cost-efficient way to start and grow a business. According to recent estimates, nearly 2.9 million UK businesses are now run from their owners’ homes. These businesses contribute more than £300 billion to the national economy and account for a large share of new business start-ups each year.
For many sole traders, setting up at home removes one of the most significant overheads: the cost of renting or buying business premises. This provides flexibility and reduces financial risk, particularly in the early stages. But the advantages extend beyond savings on rent. Sole traders working from home are entitled to claim a variety of home-related costs as allowable expenses, helping to reduce their taxable income and, in turn, the amount of tax they owe.
The Basics of Allowable Expenses
Understanding allowable expenses is crucial for any self-employed person. These are legitimate costs that HM Revenue & Customs permits you to deduct from your business income. Once allowable expenses are subtracted, you are left with your taxable profit, which forms the basis of your tax calculation.
The core requirement for an expense to be allowable is that it must be incurred wholly and exclusively for the purpose of running your business. Personal expenses are excluded. If something is used for both personal and business purposes, you must determine the business-use proportion and claim only that. This principle applies widely in home-based businesses, where resources like heating, electricity, broadband, and even furniture are shared between personal life and work.
This applies even if you are not entirely home-based. For example, tradespeople who spend most of their time on the road but handle their admin, invoicing, or customer communication from home can still claim a proportion of their home expenses.
The £1,000 Trading Allowance Limitation
There is an alternative to claiming actual expenses: the £1,000 trading allowance. This allows sole traders to earn up to £1,000 in business income tax-free without having to declare expenses. However, if you choose to claim this allowance, you cannot also deduct any business expenses from your income. This makes it more suitable for those with very low costs or occasional side income. For those with regular or significant business expenses, claiming allowable costs often results in a better tax outcome.
Key Home-Based Expenses You Can Claim
When running your business from home, there are many household-related costs that you can claim, provided they meet HMRC’s criteria. These are not limited to utilities and telecoms, though those are common. This section focuses on property and maintenance-related expenses, which often represent some of the larger and more consistent costs you’ll encounter.
Mortgage Interest Payments
If you are paying off a mortgage, you cannot claim the full repayment amount. Mortgage repayments usually consist of both capital and interest. Only the interest portion is potentially claimable. You can only claim a proportion of the interest that relates to the business use of your home.
To calculate this, you first determine how many rooms are in your home and how many of those are used for your business. Then, you factor in how many hours per day or week those rooms are used for work. This approach allows you to calculate a reasonable and justifiable percentage of the mortgage interest you can claim as an allowable expense.
You must ensure that you are only claiming interest costs, as mortgage capital repayments are never allowable under HMRC rules.
Rent
If you rent your home rather than owning it, a portion of your rent may also be claimed as an allowable expense. The process of working out how much to claim is similar to that for mortgage interest. You base the claim on how much of your home is used for business purposes and how often.
For example, if you rent a four-room home and use one of those rooms exclusively for business for half of the week, you would calculate a suitable proportion of your rent accordingly. This amount can be deducted from your business income when calculating your taxable profit.
Council Tax
Council Tax is another recurring cost that applies to most residential homes in the UK. If you use part of your home for your business, you may be able to claim a portion of this expense. As with rent and mortgage interest, you need to work out how much of the property and how much time is dedicated to business activities.
Your calculation might look something like this: your annual Council Tax bill is £1,200. You work from one room out of a total of five, and that room is used solely for business five days a week. You might calculate the claimable proportion as one-fifth of £1,200, adjusted to reflect the time it’s used for business.
Business Rates
Most people working from home do not pay business rates. However, in certain circumstances, a portion of your home may be classified as business premises. This might apply if you have made significant modifications to an area of your property to run your business, such as converting your garage into a customer-facing salon or training studio.
If your local authority determines that business rates apply, you may be eligible to claim the full amount paid as a business expense. It’s essential to check this with your council, especially before making any structural changes to your property.
Maintenance and Repairs for Business Areas
Maintenance work is often necessary to keep your home safe and functional. If repairs or maintenance relate directly to the part of your home used for business, you may be able to claim all or part of the cost.
For example, repainting or fixing a window in your home office would generally be a valid business expense. Even general repairs that affect the entire home, such as a new boiler installation or roof repairs, can be claimed in part if your business space benefits from them. Again, the proportion should be calculated based on how much of the home is used for the business.
It’s worth noting that cosmetic improvements or renovations aimed at increasing your home’s resale value are unlikely to qualify as allowable expenses, unless there is a direct and measurable business use involved.
Professional Cleaning
If you hire professional cleaners to clean your home, and that cleaning service covers your business workspace, you may be able to claim a portion of the cost. This is only applicable where the cleaning is necessary for the running of the business or maintaining a professional environment for clients.
Where cleaners are employed solely to clean the business space, the entire cost may be claimed. If the cleaning covers the whole house, a proportionate share must be calculated in line with the space and time used for business activities.
Major Repairs
Large-scale repairs or improvements, such as replacing a roof or addressing structural issues, can be partially claimed as allowable expenses if the business area benefits from them. These types of costs are usually shared across the property, so you’ll need to apply a reasonable method to calculate how much is related to your business use.
For example, if you run your business from a home office and your roof is repaired, the business-use portion of your roof-related costs can be calculated and included in your expense claim.
These expenses are subject to scrutiny, so it’s important to keep all records, including invoices and calculations, and to apply the same method consistently year after year.
Capital Gains Tax Consideration
One important caveat to keep in mind when claiming home expenses is how your claims might affect Capital Gains Tax when you eventually sell your home. If you declare a specific room as being used exclusively for business, HMRC may later consider that room to be outside the private residence exemption. This could result in part of the profit from selling your home becoming liable for Capital Gains Tax.
To avoid this, many sole traders opt to demonstrate that the room is used for both business and personal activities. By doing so, they can claim a proportion of costs while still preserving full Capital Gains Tax relief on the property.
Continuing to Maximise Allowable Expenses from Home
We examined how sole traders running a business from home can claim tax relief on housing-related expenses such as mortgage interest, rent, Council Tax, repairs, and maintenance. These are often among the most significant costs, especially when a dedicated room or space is used regularly for business purposes.
However, the list of allowable expenses doesn’t stop there. Home-based businesses rely heavily on essential utilities, communication tools, and equipment. These can all be partially or wholly deductible, depending on how they are used in your business.
We explored these areas in depth, looking at how to approach mixed-use expenses, how to calculate the business-use portion, and when it might be simpler to opt for HMRC’s flat-rate method instead.
Claiming Utility Bills When Working from Home
Operating a business from home increases your use of basic utilities. Even if the increase is modest, it is usually enough to justify claiming back part of those costs, especially if you work from home full-time.
Electricity
Electricity is often one of the higher household bills and can be claimed in part when used to power a home office, studio, or workspace. This includes lighting, heating, charging laptops, powering equipment, and running appliances directly linked to your business activities.
To calculate what you can claim, you need to determine a reasonable method based on the number of rooms in your home and the number of hours the space is used for business.
For example, if your electricity bill is £1,200 annually, and you work from one room in a six-room home, using it 50 percent of the time for business, the calculation would be:
£1,200 divided by 6 equals £200 per room.
£200 multiplied by 50 percent (business use) equals £100.
That £100 would be the claimable business-use portion for the year.
Gas
Gas is another utility that you may use more during working hours, particularly for heating in colder months. Similar to electricity, the portion that can be claimed depends on the rooms used and the time spent working in them.
This is often calculated annually, but some sole traders may calculate separate proportions for summer and winter if usage varies significantly. The key is to use a consistent and justifiable method and retain records in case HMRC requests evidence in future.
Water Rates
Water bills are slightly different. Many businesses do not significantly increase household water usage unless water is essential to their trade. For example, if you run a home-based cleaning service, pet grooming business, or beauty treatment room, you’re more likely to use extra water than someone working on a computer.
If your business does require increased water use, you may claim an appropriate portion of the bill. Otherwise, claims should reflect minimal usage, or it may be more appropriate to exclude water entirely if it’s not materially impacted by your business operations.
Dealing with Communication Costs
Communication tools are essential to any modern business. They are how you communicate with customers, suppliers, and partners. When running your business from home, your internet connection, mobile phone, and potentially a landline are part of your operating infrastructure.
Because these are usually shared with personal use, the portion you can claim must reflect business use only.
Broadband and Internet
Broadband is one of the most common home expenses claimed by sole traders. If you use your internet connection for business tasks like emailing, running a website, conducting video calls, or using cloud-based software, then a proportion of your broadband bill can be claimed.
The claimable amount depends on your usage pattern. If you use broadband equally for business and personal reasons, you could justify a 50 percent claim. If it’s used almost entirely for business during working hours, you may be able to claim more.
Keep in mind that you’ll need to document your method for calculating the percentage, especially if you’re audited.
Landline
If you use a landline phone for your business, you may claim the portion of your phone bill that covers business calls. If you’ve installed a second dedicated line specifically for your business, then you can usually claim the full cost.
If you use a single line for both business and personal calls, keep a record of how much time or cost is associated with business usage. Itemised bills can help you calculate a reasonable percentage.
As with other mixed-use claims, consistency is key. A clearly documented method, applied the same way each year, is likely to stand up to scrutiny.
Mobile Phone
Most sole traders use a mobile phone for both business and personal purposes. To determine how much of the cost can be claimed, assess what proportion of your calls, texts, and data are for business.
Suppose your mobile phone bill is £50 per month, and you estimate that 60 percent of the calls and usage relate to your business. You could reasonably claim £30 per month as an allowable expense.
If you have a separate phone used exclusively for business, you may be able to claim the full cost. Retain purchase receipts, contracts, and itemised bills to support your claim if required.
Equipment, Office Furniture, and Stationery
Many home-based sole traders invest in tools, furniture, and technology to run their business efficiently. These purchases are often eligible as allowable expenses, but how they are claimed depends on your accounting method.
Cash Basis vs Traditional Accounting
If you use cash basis accounting, where income and expenses are recorded when money changes hands, then items like computers, printers, desks, and office chairs can usually be claimed in full as business expenses.
If you use traditional accounting, which records transactions based on invoice dates regardless of when payment is made, such purchases are considered capital assets. In this case, you would claim the cost gradually over time using capital allowances.
Office furniture and business supplies that are used solely for your business can also be claimed in full under cash basis accounting. This includes filing cabinets, shelving units, business-specific lighting, and stationery such as paper, pens, and envelopes.
Make sure any item you claim is genuinely used for your business. Shared items must be apportioned, and items used primarily for personal purposes cannot be claimed at all.
The Option of Using Simplified Expenses
For sole traders who prefer not to spend time calculating individual bills and usage patterns, HMRC offers an alternative in the form of simplified expenses. This is a flat-rate method based on how many hours you work from home each month.
It is available to those who work at least 25 hours a month from home and wish to simplify their tax return.
Flat-Rate Calculation
If you work:
- 25 to 50 hours a month from home, you can claim £10 per month
- 51 to 100 hours a month, you can claim £18 per month
- Over 100 hours a month, you can claim £26 per month
These rates cover general household expenses such as utilities and rent. However, they do not include communication costs such as internet or mobile phone bills. Those must be calculated and claimed separately, based on business use.
This flat-rate approach is popular among sole traders who want to avoid the complexities of splitting shared bills. While it may not always provide the highest claim, it offers a straightforward and HMRC-approved method.
Choosing between actual expenses and the simplified rate depends on your specific circumstances. Those with high household costs or significant business use of the home may benefit more from calculating actual usage. Those with lower usage or limited time may find the flat rate easier.
Keeping Records and Applying Consistency
Regardless of how you claim your home-related expenses, you must maintain accurate records. This includes invoices, utility bills, phone bills, and purchase receipts. If you’re apportioning costs, document your method and apply it consistently year on year.
HMRC does not require you to submit these records when you file your Self Assessment tax return, but they can request to see them at any time. Having a clear audit trail supports your claims and reduces the risk of penalties or adjustments.
Sole traders should keep records for at least five years after the 31 January submission deadline of the relevant tax year. For example, if you file your 2024 to 2025 return by 31 January 2026, you must retain your records until at least January 2031.
Home-Based Business Costs
Understanding what you can claim as a sole trader running a business from home allows you to make informed decisions about your business spending. It can also help with planning for future tax years. Whether you’re investing in a faster internet connection, buying new office furniture, or upgrading equipment, knowing these purchases could reduce your tax bill makes them more manageable.
Bringing It All Together for Your Self Assessment
Running a sole trader business from home comes with significant tax-saving opportunities, especially when you know how to correctly identify and claim allowable expenses. From utility bills and rent to broadband and office equipment, you may be eligible to deduct a portion of your household costs from your income to reduce your tax liability.
We will look at how to calculate these claims accurately, how to report them on your Self Assessment tax return, and how to ensure you remain compliant with HMRC rules. We will also go through example calculations and clarify the differences between flat-rate and actual expense claims.
Working Out What You Can Claim
One of the more challenging parts of claiming home-based expenses is calculating how much of each bill or cost actually applies to your business. Many expenses have mixed-use, meaning they are shared between business and personal purposes. In these situations, you are only allowed to claim the business-use portion.
There’s no single method mandated by HMRC, but any method you choose must be reasonable, consistent, and supported by evidence if required. Two common ways to calculate these are based on room usage and time.
Using the Number of Rooms
This approach is useful for fixed household costs such as rent, mortgage interest, gas, electricity, and water. If you have six rooms in your home and use one of them as your office, you might start by allocating one-sixth of the relevant bills to business use.
You then adjust this figure based on how much time that room is actually used for work.
Factoring in Time Usage
If a room is not used exclusively for business, or if you work in shifts, you’ll need to account for the number of hours it’s used for work each week or month. For example, if you use your office space 50 percent of the time for business and 50 percent for personal use, then only half of the already calculated room-share should be claimed.
This combined method—based on both space and time—is widely used and generally acceptable to HMRC.
Example 1: Electricity Bill
Let’s say your annual electricity bill is £1,200. Your home has four rooms, and you use one as a home office. You work in that room around 90 percent of the time it is in use.
- Divide the total bill by number of rooms: £1,200 ÷ 4 = £300
- Multiply by business use: £300 × 90% = £270
So, you may claim £270 of your annual electricity costs as an allowable expense.
Example 2: Broadband Use
Your broadband bill is £600 per year. After reviewing your usage, you estimate that 60 percent of your internet activity is for business.
- Total bill: £600
- Business usage: 60%
- Allowable expense: £600 × 60% = £360
You can reasonably claim £360 as a business expense. Keep in mind that if your internet usage habits change, you should review your percentage calculation annually.
Example 3: Mobile Phone
If your mobile phone bill is £50 per month and 70 percent of your calls and usage are for work, you can claim:
- £50 × 70% = £35 per month
- £35 × 12 months = £420 annually
This figure should be supported by itemised bills or clear usage records if your return is ever reviewed.
Claiming for Shared Equipment and Office Items
Items like computers, printers, and office furniture may have some personal use as well. When using cash basis accounting, you can claim the cost outright, but you must reduce the claim if the item is not used solely for business.
For example, if you buy a new desk for £200 and use it exclusively in your business area, you can claim the full £200. But if you also use the desk for personal reasons—perhaps in a shared living room—you might claim only a portion of it, say £120.
Capital items under traditional accounting require capital allowances instead. This spreads the cost over several years based on depreciation and use.
When a Room Is Used Exclusively for Business
If you have a dedicated space in your home used solely for business, your expense calculation becomes simpler. You can claim a more direct percentage of household bills like heating, electricity, and cleaning services.
However, declaring a room as being for exclusive business use may have longer-term tax consequences. When you sell your home, that room may be excluded from your private residence relief, potentially resulting in a Capital Gains Tax bill.
To avoid this, many sole traders choose to demonstrate that a room has some level of dual use—perhaps by occasionally using it as a guest room or personal workspace. This allows the room to remain part of your private residence in the eyes of HMRC.
Using Simplified Expenses Instead of Calculations
If working out percentages for each expense seems overly complicated, you can use simplified expenses to claim a flat rate for working from home. This method is only available if you work at least 25 hours a month from your home.
The simplified rates are:
- £10 per month for 25 to 50 hours
- £18 per month for 51 to 100 hours
- £26 per month for 101 hours or more
These figures are fixed and cover heating, electricity, rent, and similar household costs. They do not include internet or phone expenses, which must still be calculated separately.
This method can be convenient if your usage is fairly consistent and your costs are moderate. However, if you have higher household bills, claiming actual expenses may result in greater tax savings.
Where and How to Report These Expenses
Sole traders report their income and expenses by completing the Self Assessment tax return each year. The main form is the SA100, and sole traders also complete the supplementary form SA103.
There are two versions of SA103:
- SA103S (short form) for businesses with straightforward accounts
- SA103F (full form) for businesses with more complex accounting or higher turnover
On these forms, you report your total business income and total allowable expenses. The expenses are grouped under headings such as premises costs, utility costs, admin expenses, and capital allowances.
You do not need to submit receipts or calculations with your return, but you must keep them on file in case HMRC requests evidence in future.
What Records Should You Keep?
To support your expense claims, you must keep comprehensive records. These should include:
- Receipts and invoices for all claimed purchases
- Utility bills, phone bills, and internet contracts
- Bank statements showing payment transactions
- Calculations showing how you worked out business-use proportions
- A log or diary if you work varying hours each week
Good recordkeeping not only protects you in the event of an HMRC inquiry but also helps you make accurate and justifiable claims each year.
HMRC Timeframes and Penalties
HMRC can review your tax return up to four years after the end of the relevant tax year. If they find errors or discrepancies, you may face penalties, interest on unpaid tax, or fines for negligence.
In cases of deliberate or careless misreporting, the timeframe can extend up to 20 years. Therefore, it’s vital to be transparent and careful with all expense claims.
If HMRC challenges a claim and you can provide no evidence or justifiable method, they may disallow the deduction and adjust your tax bill. If the mistake was deemed deliberate, additional penalties may apply.
What If You Make a Mistake?
Mistakes happen. If you discover that you’ve claimed an incorrect amount or missed an allowable expense after submitting your return, you can amend it. You usually have 12 months from the Self Assessment deadline to correct your return.
For example, if you filed your 2024 to 2025 return by the 31 January 2026 deadline, you have until 31 January 2027 to make changes. You can do this online via your Government Gateway account or by contacting HMRC directly.
If you realise you overclaimed, it’s better to notify HMRC yourself than wait for them to discover it. Voluntary disclosure usually leads to reduced penalties compared to errors uncovered by HMRC during an investigation.
Regularly Reviewing and Updating Expense Claims
Your working habits, household setup, and business needs may change over time. Perhaps you add a new room for your office, increase your working hours, or upgrade your broadband package. It’s important to review your expense calculations annually to ensure they reflect your current situation.
Using last year’s numbers without checking them could result in overclaiming or underclaiming. If your circumstances change mid-year, make sure your calculations take those changes into account. A simple spreadsheet or notebook log can help keep track of these adjustments throughout the year.
Avoiding Common Pitfalls
Some of the most frequent mistakes made by sole traders include:
- Claiming personal expenses as business costs
- Using inconsistent or unrealistic business-use percentages
- Failing to update claims after moving house or changing working patterns
- Not keeping records to support expense claims
- Ignoring capital expenditure rules under traditional accounting
By avoiding these mistakes and taking a cautious, honest approach, you can safely claim all the relief you’re entitled to without fear of an HMRC challenge.
Home-Based Sole Traders
Once you understand how to calculate, report, and document your allowable expenses, you’ll be in a strong position to reduce your tax liability legally and effectively. Working from home as a sole trader has its financial advantages, and knowing how to claim the appropriate deductions helps you get the most out of this arrangement.
Conclusion
Running your business from home as a sole trader can offer major financial advantages, not only through lower overheads but also by allowing you to claim a wide range of allowable expenses. These can include a proportion of your mortgage interest or rent, utility bills, internet and phone usage, equipment, furniture, and even maintenance and cleaning costs for your workspace.
By understanding which expenses qualify and applying a clear, consistent method to calculate the business-use portion of shared costs, you can reduce your taxable profit and legitimately lower the amount of tax you pay. Whether you prefer to track actual expenses or use HMRC’s simplified flat-rate system, the key to success is accuracy, honesty, and thorough recordkeeping.
Your chosen method should reflect how your home is used for business and be backed up by invoices, receipts, bills, and working calculations. HMRC does not require you to submit this information with your return, but you must be ready to present it if asked.
It’s also important to review your claims annually to ensure they still reflect your business habits, especially if you’ve increased your hours, expanded your use of space, or made new purchases. Mistakes can usually be corrected, but overclaiming deliberate or not can trigger fines or investigations.
As the sole trader landscape continues to evolve and more people shift toward remote or home-based working models, understanding how to navigate allowable expenses becomes increasingly valuable. With careful planning and attention to detail, claiming home-based tax expenses can be a powerful tool for improving your bottom line and keeping more of what you earn.