What Does HMRC Consider an Allowable Expense?
Allowable expenses are costs that are incurred wholly and exclusively for business purposes. If you’re self-employed and use part of your home for work, you can usually claim a portion of your home-related expenses. These deductions help lower your tax bill by reducing the amount of profit you report to HMRC.
However, if an expense is used for both personal and business reasons, only the business proportion is allowable. It’s important to understand how to calculate this accurately.
Types of Expenses You Can Claim When Working from Home
Utility Bills
If working from home leads to higher electricity, gas, or water usage, you may claim a proportion of these costs. For example, heating a room during working hours, or using electricity for lights and equipment, qualifies as business use.
The portion you can claim depends on how much of your home is used for business, and how long it is used for. A fair and reasonable method should be used for calculations.
Rent or Mortgage Interest
Self-employed individuals who rent their homes can claim a portion of their rent as a business expense. Similarly, homeowners can claim a portion of their mortgage interest—not the full mortgage payment—as this represents the cost of borrowing rather than capital repayment.
The amount claimed should reflect the portion of the home used for business, as well as the duration of use. You should also consider the potential Capital Gains Tax implications if you use a room exclusively for business.
Council Tax
If you work from home, you can claim a portion of your council tax, based on the amount of space used for business and the time spent using it. Again, the room should be used partly or wholly for business purposes.
Internet and Telephone Bills
Internet and telephone services that are used for business can be partially claimed. You’ll need to determine the proportion of time the internet is used for business activities versus personal use.
If you have a dedicated business phone line, that cost is fully allowable. If you use your personal phone, only the business-related calls can be claimed.
Office Supplies and Equipment
Any office supplies used for business—such as printer paper, ink, pens, stationery, and postage—can be claimed in full. Similarly, business equipment like computers, desks, and chairs may be allowable, though the way they are claimed can depend on whether they are capital assets.
Expenses You Cannot Claim
Not all costs associated with your home can be claimed against your tax bill. HMRC does not allow personal expenses to be deducted. This includes costs not directly related to business operations.
Examples of non-allowable expenses include:
- Personal mobile phone usage unrelated to business
- Your entire utility bills, if only part of the home is used for work
- Groceries or refreshments consumed at home
- Rent for rooms not used for business
The general rule is that costs must be incurred wholly and exclusively for the purpose of running the business.
Calculating Your Expenses Accurately
There are two main methods for calculating allowable expenses when working from home: the actual cost method and the simplified expenses method.
Actual Cost Method
This approach involves calculating the actual proportion of household bills and expenses that relate to business use.
To do this, consider the following:
- Number of rooms in your home
- Number of rooms used for business
- Percentage of time each room is used for work
For example, if you use one room out of four as an office, and your annual electricity bill is £800, you might claim 25% of the bill—or £200—provided that room is used exclusively for business. If it’s used half the time for personal purposes, only 50% of the £200 should be claimed. This method requires detailed record-keeping, but it allows for more accurate expense claims.
Simplified Expenses Method
For those who prefer not to calculate actual costs, HMRC allows the use of simplified expenses. This method uses a flat rate based on the number of hours you work from home each month.
- 25 to 50 hours per month: claim £10 per month
- 51 to 100 hours per month: claim £18 per month
- 101 hours or more per month: claim £26 per month
This method is easier but may result in a lower deduction than calculating actual costs, especially if you work from home extensively.
Note: The simplified expenses method only applies to certain expenses, such as utilities. You’ll still need to work out other expenses—like rent or mortgage interest—using the actual method.
Importance of Keeping Records
To support your claims, it’s essential to maintain accurate records of your expenses. This includes:
- Bills and invoices
- Evidence of room usage (such as floor plans or photographs)
- Notes on how you calculated proportions
Keeping these records will make completing your Self Assessment tax return easier and more accurate. It will also ensure you have evidence if HMRC asks for clarification.
Using Shared Spaces and Capital Gains Tax Implications
If you use part of your home exclusively for business, this could affect your entitlement to private residence relief if you sell your home. This relief typically exempts the property from Capital Gains Tax.
To avoid this, many people ensure that business-use rooms are also used occasionally for personal purposes. For example, a spare bedroom used as an office during the day could still function as a guest room.
Managing Changes in Usage
Your business needs and home setup may change over time. If you increase the amount of space or time used for business, update your calculations. Similarly, reduce your claims if you downscale your business use of home.
Regular reviews ensure your expense claims are accurate and compliant.
Planning Throughout the Tax Year
Rather than waiting until the end of the year, it’s a good idea to track expenses continuously. Doing so helps you:
- Avoid missing deductible costs
- Plan for tax bills in advance
- Adjust claims in real-time if circumstances change
Keeping a monthly log of expenses and reviewing your home usage can also help you spot trends and potential savings.
How to Choose Between Actual Costs and Simplified Expenses
Choosing the right method depends on your business model and home setup. If your business occupies a large portion of your home or your bills are high, actual costs may provide greater deductions. If your usage is minimal, simplified expenses can save time.
In some cases, trying both methods for a few months and comparing the results can help determine which one works best for your situation.
Key Points
- You can claim a portion of household expenses when you work from home as a self-employed person
- Only the business-use proportion of mixed-use expenses is allowable
- Choose between actual costs or simplified expenses based on what is most beneficial
- Maintain clear records to support your claims
- Be aware of potential Capital Gains Tax implications for exclusive business use of a room
Overview of Claimable Expenses
Understanding what you can claim as a self-employed person working from home is essential to avoid missing out on valuable deductions. In this part, we break down common categories of expenses with practical examples to help you apply the rules correctly.
Heating, Electricity, and Water: Proportional Usage Explained
If you work from home, you will likely use more heating, lighting, and water during business hours. These expenses qualify as business costs, but only the relevant share can be claimed.
For instance, suppose your electricity bill is £600 per year. You work in a dedicated room that represents 20% of your home and is used for business five days per week. In that case, you may calculate a 20% share of the bill and apply a five-sevenths work pattern, which gives you an allowable expense of £600 × 20% × (5/7) = approximately £85.71.
Internet Access and Mobile Phone Usage
You can claim for broadband and mobile phone usage, but only the business element. Keeping itemised records or reviewing usage patterns can help.
Example:
- Your broadband costs £480 per year
- You estimate 50% of your internet use is for work
Your claim: £480 × 50% = £240
Similarly, if you use your mobile phone for both business and personal calls:
- Monthly bill: £50
- Business use: 40%
Claim: £50 × 40% × 12 months = £240 per year
Claiming a Portion of Your Rent
If you rent your home, the space used for business may qualify for partial rent relief. Again, use room and time calculations.
Example:
- Monthly rent: £1,000
- One room of five used for business (20%)
- Used five days per week
Claim: £1,000 × 20% × (5/7) = £142.86 per month
Multiply by 12 for your annual claim.
Claiming Mortgage Interest (Not Capital Repayment)
If you own your home, you can only claim the interest portion of your mortgage. For instance:
- Annual mortgage interest: £3,600
- One room of five used solely for work
- Used full-time for business
Claim: £3,600 × 20% = £720
Again, adjust for part-time use if applicable.
Claiming Council Tax and Home Insurance
Council tax is another home expense that may be partially claimed.
Example:
- Annual council tax: £2,000
- Business use of home: 20% of the space, 70% of the time
Claim: £2,000 × 20% × 70% = £280
Similarly, you may be able to claim a proportion of your home insurance if it covers your business activities.
Office Furniture and Equipment
Chairs, desks, monitors, printers, and similar equipment used for your work can usually be claimed either:
- As capital allowances (for assets over a certain value), or
- As allowable expenses (if the value is small)
Keep receipts and proof of business use.
Claiming Cleaning Costs
If a room is used exclusively for business, you may claim cleaning costs for that space. Mixed-use rooms generally do not qualify for this.
For example:
- Cleaning service for home: £1,200/year
- One business-only room of five: 20%
Claim: £1,200 × 20% = £240
Depreciation and Wear-and-Tear
HMRC does not allow claims for depreciation of domestic assets. However, you may claim for specific items bought solely for business use, such as laptops or dedicated monitors, through capital allowances or direct expense claims.
When a Room is Used Exclusively for Business
Using a room only for business may increase the amount you can claim, but it also introduces a potential Capital Gains Tax liability when selling your home.
If you want to avoid this, consider dual use. For example, use your office room as a guest bedroom on weekends.
Avoiding Errors in Expense Claims
Common mistakes include:
- Over-claiming personal expenses
- Estimating usage without documentation
- Claiming 100% of shared bills
Ensure you base your claims on factual, reasonable estimates and maintain written records.
Example Calculations for Full-Year Use
Suppose you work full-time from home using one room out of five:
- Rent: £12,000/year × 20% = £2,400
- Utilities: £2,400/year × 20% = £480
- Internet: £480/year × 60% = £288
- Mobile phone: £600/year × 40% = £240
Your total claim: £3,408
These figures illustrate how small portions add up over the year.
Simplified Expense Method in Practice
If you prefer not to calculate actual proportions, you can use HMRC’s flat-rate system:
- 25 to 50 hours/month: £10
- 51 to 100 hours/month: £18
- 101+ hours/month: £26
Multiply the flat rate by the number of months worked from home. For example, working 101+ hours for 12 months gives you a flat claim of £312 per year.
Remember: This rate only applies to utilities. Other costs like rent, council tax, and insurance require separate calculations.
Business Use of Shared Assets
If you use personal items—like your laptop—for both business and private use, only a proportion is allowable.
Example:
- Laptop cost: £1,000
- Business use: 60%
Claim: £1,000 × 60% = £600
Apply this logic to printers, external hard drives, or even software licenses.
Recordkeeping Tips for Homeworking Claims
Maintain the following:
- Receipts and bills
- Time logs (for work hours)
- Notes on room usage
- Itemised phone bills
Being organised saves time at tax filing and ensures accuracy.
Planning Ahead for the Tax Year
It’s a good idea to:
- Update your records monthly
- Adjust for changes in work routine or home layout
- Reassess claims at mid-year points
Doing so avoids under- or over-claiming and makes end-of-year filing smoother.
Advanced Tax Considerations for Home-Based Self-Employment
We’ll explore deeper considerations when managing your self-employed finances from home. Topics include tax planning strategies, handling hybrid working arrangements, implications for shared households, digital tools for expense tracking, and how to adapt your claims over time. These areas are essential for long-term efficiency and compliance with tax rules.
Strategic Tax Planning When Working From Home
Good record-keeping is just the beginning. Advanced tax planning means:
- Claiming the right expenses at the right time
- Understanding changes in business use throughout the year
- Staying alert to thresholds and allowances
For instance, you may reach the VAT registration threshold (£90,000) and need to adjust how you handle expenses. Similarly, if your working hours increase, it may be worth switching from simplified to actual expense calculations.
Combining Simplified and Actual Expenses
It’s possible to use a combination of both methods. For example, use the simplified flat rate for utilities and calculate actual figures for rent, internet, or council tax.
This approach offers flexibility:
- Save time on some claims
- Maximise deductions where actual costs are higher
You’ll need to ensure consistent logic behind your mixed methods and document how you split the expenses.
Hybrid Work: Part Office, Part Home
Many self-employed people divide their time between home and a coworking space or rented office.
If so, you should:
- Apportion home-related expenses based on time worked from home
- Consider rental office costs separately as full business expenses
Tracking your location-based work hours helps avoid overstating home expenses. Apps and time-tracking software can be useful tools for this purpose.
Shared Households and Multiple Occupants
If you share your home with others—like a partner or housemates—your claim should reflect only your personal business use.
For example:
- Internet bill: £600/year
- You estimate your use is 50%, and business use of that is 60%
Claim = £600 × 50% × 60% = £180
This is especially important when accounts are joint or utility bills are in another name.
Adapting Claims Over Time
Your work-from-home habits may evolve. Initially, you might work 10 hours per week from home, increasing to 40 hours later in the year. Claims should reflect this change.
Break the year into distinct usage periods:
- Jan–Apr: 10 hours/week = 40/month = £10 flat rate/month
- May–Dec: 40 hours/week = 160/month = £26 flat rate/month
Total: (4 × £10) + (8 × £26) = £264 for the year
If using actual expenses, adjust proportions based on new patterns.
Keeping Proof of Business Use
HMRC may ask for evidence of how you calculated your expenses. Useful documents include:
- Utility bills with annotations
- A floor plan showing business-use areas
- Photos of your workspace
- Time logs or schedules
Digital folders sorted by month or expense category can help keep these organised.
Digital Tools for Tracking and Calculating
Using accounting software or apps makes expense management easier. Tools like:
- Spreadsheets with built-in formulas
- Mobile apps that scan and categorise receipts
- Cloud platforms that sync with your bank accounts
These tools can:
- Automate categorisation
- Flag recurring costs
- Provide summaries for Self Assessment filing
Considerations for Long-Term Capital Use
If you purchase major items—like furniture or office equipment—you may need to record them as capital assets. This affects how and when you claim the cost.
Items over £500 are often recorded as:
- Capital assets
- Claimed through Annual Investment Allowance
Keep depreciation and future sale implications in mind.
Home Business Insurance
Standard home insurance may not cover business activities. Consider:
- Adding business cover to your policy
- Ensuring any expensive business assets are protected
This cost may also be claimed proportionally as an allowable expense.
Broadband Bundles and Entertainment Packages
Many internet packages come bundled with phone, TV, or entertainment services. Only claim the business-use portion of the internet, not the entire bundle.
Estimate usage:
- Business share of internet usage: 50%
- Internet makes up half the monthly bill of £80
Claim: £80 × 50% × 50% = £20
Maintain notes on how you reached that figure.
Adjusting for Seasonal Variations
If you use more energy in winter for heating your workspace, and less in summer, you can adjust claims accordingly.
For example:
- Winter months (Nov–Mar): 25% usage
- Summer months (Apr–Oct): 15% usage
Calculate each period separately for a more accurate claim.
Working From a Non-Residential Property
If you rent a garage, garden office, or external studio, these spaces may be treated differently. In most cases:
- Rent is fully deductible
- Utility bills for these spaces are 100% allowable
- Separate insurance may be required
Document the agreement and maintain receipts.
Planning for Annual Self Assessment
Each January, you’ll file your Self Assessment return. To make this process smooth:
- Summarise your monthly expense claims
- Review your usage logs
- Ensure no duplication across categories
Cross-check claims for consistency across utilities, rent, and equipment.
Consulting a Professional
If your setup is complex—shared ownership, multiple properties, or capital gains exposure—it may help to speak with a tax professional.
They can:
- Verify your calculations
- Recommend the best approach
- Prevent over- or under-claiming
Claiming for Temporary Changes
If your home working is temporary—say, for part of the year—you can still claim, but only for that period.
Example:
- March–July only
- Utilities: £800 × 5/12 = £333.33
- Apply business usage to this figure
Track changes in location or working status to keep records accurate.
Children and Family Disruptions
If your workspace is shared or disrupted by others (e.g. children during school holidays), consider whether business use is affected. You may need to:
- Lower your business-use percentage
- Use shared-use logic
Being conservative in claims reduces the risk of dispute.
Closing Tips
When claiming expenses for working from home:
- Use realistic and consistent estimates
- Keep receipts, logs, and backup documents
- Regularly review your work pattern
Combining these habits with digital tools ensures your tax returns are accurate and compliant.
How Changes in Legislation Impact Claims
Tax rules and thresholds are subject to change, so staying informed is essential. For instance, updates to simplified expense rates or changes to Annual Investment Allowance limits can directly affect what and how much you can claim. Set a calendar reminder to check HMRC updates before each tax year. This ensures your expense planning reflects current legislation and avoids errors based on outdated rates.
Scaling Your Business and the Impact on Home Expense Claims
As your business grows, you may:
- Work longer hours from home
- Dedicate additional rooms to business use
- Invest in higher-value equipment or furnishings
Each of these changes may increase your allowable expenses. Ensure your calculations evolve with your business. For example, using two rooms out of six instead of one increases your claimable portion from 16.67% to 33.33% for shared costs.
When to Switch from Home-Based to Office-Based Claims
There may come a point where renting a co-working space or dedicated office becomes more efficient or necessary. In this case, you should:
- Cease claiming household expenses for the portion of time spent in the external office
- Begin tracking and deducting the costs of the rented space as 100% business expenses
Consider performing a cost-benefit analysis: weigh the additional expenses of office rent against the reduced household claims and potential productivity benefits.
Record Keeping Best Practices for Growing Sole Traders
As your business grows, so should your record-keeping habits. For complex operations, consider:
- Using dedicated business bank accounts
- Separating personal and business spending
- Upgrading from spreadsheets to cloud-based accounting platforms
Consistency and clarity in your records can streamline tax returns and reduce the likelihood of costly mistakes.
Audit-Proofing Your Expense Claims
While HMRC doesn’t audit every tax return, random checks do happen. To prepare:
- Keep digital copies of bills and receipts
- Maintain logs of time worked and space used
- Write down your calculation methods annually
Store all this documentation securely for at least five years after the 31 January submission deadline of the relevant tax year.
Adapting Your Workspace and Home Environment
Home improvements for business use—like adding a dedicated garden office—can be an asset but may not always be fully deductible.
In general:
- The structure itself is not allowable
- Fittings and furniture inside may be claimable
Speak with a tax advisor before investing heavily in workspace improvements, especially where capital or structural costs are involved.
Environmental Costs and Green Home Initiatives
Energy-efficient upgrades made for home offices, such as LED lighting or smart thermostats, may not be directly claimable unless used solely for business. However, they may lower your ongoing utility bills, thus indirectly benefiting your business finances.
Consider tracking energy savings over time to adjust your future utility expense estimates.
Handling Multiple Income Streams from Home
If your self-employment income includes multiple business activities—like consulting and online retail—you still calculate shared home expenses collectively.
Allocate expenses across all business activities proportionally. This avoids duplication and ensures each income stream is fairly accounted for in your tax return.
Working Across Different Properties
If you split your time between more than one home—for instance, working in two cities—you may claim a portion of expenses from both addresses, provided both are used for business.
Keep location-specific logs and bills to justify your claims.
Claiming for Storage Space
If you use part of your home for storing stock, inventory, or tools:
- Identify square footage used
- Estimate the percentage of total home space
- Apply that percentage to rent, utilities, or insurance
This is particularly relevant for eCommerce businesses, tradespeople, and home retailers.
Partnering with a Bookkeeper or Accountant
Hiring professional help is often a smart move as your operations expand. A bookkeeper or accountant can:
- Identify overlooked expenses
- Ensure compliance
- Help with cash flow forecasting
Their fees are also deductible as a business expense.
End-of-Year Review Strategies
At the end of each financial year:
- Summarise total claims
- Compare simplified vs actual cost methods
- Assess any usage changes or workspace upgrades
Use these findings to inform your claims strategy for the next year. Create a checklist to ensure all recurring expenses are captured and adjusted if needed.
Seasonal Business Models and Home Use
If your self-employed business is seasonal—like tutoring or tax advising—adjust your expense claims accordingly.
For example:
- Tutor working from home Jan–June: claim for 6 months
- Continue maintaining records year-round
Avoid claiming full-year deductions if your home use isn’t year-round.
Making the Most of Your Tax-Free Allowances
While expense claims reduce your taxable profit, don’t forget about personal allowances. Each individual has:
- A Personal Allowance (currently £12,570)
- Trading Allowance (£1,000) for very low-income businesses
Coordinate your expense claims with these allowances to optimise your tax position.
Future-Proofing Your Expense Strategy
As remote work trends continue, tax rules may adapt. Stay ahead by:
- Subscribing to HMRC newsletters or tax update blogs
- Attending webinars or joining industry groups
- Reviewing your claims quarterly, not just annually
Adopting a forward-thinking approach keeps your records accurate and your finances in top shape, regardless of how your business evolves.
Conclusion
Working from home as a self-employed individual brings flexibility, autonomy, and the opportunity to structure your business in a way that suits your lifestyle. But it also comes with financial responsibilities—particularly when it comes to managing and claiming business-related expenses accurately.
Understanding what you can and can’t claim, how to calculate the correct proportions, and when to use simplified or actual expense methods is essential for staying compliant with HMRC and ensuring you’re not overpaying tax. From utilities and rent to broadband, office furniture, and insurance, there are many day-to-day costs that can be partially reclaimed to reduce your taxable income.
Equally important is the discipline of maintaining well-documented records, reviewing claims regularly, and adjusting for changes in work patterns or home use. Whether you’re just starting your self-employed journey or scaling an existing operation, keeping a proactive approach to your homeworking expenses will give you clarity and confidence during the tax year and when it’s time to submit your Self Assessment.
In an evolving work environment where remote and hybrid arrangements are more common than ever, the ability to maximise your allowable expenses isn’t just a tax-saving opportunity—it’s a smart business practice. Staying informed, accurate, and organised ensures that you’re claiming what you’re entitled to, and keeps your financial foundation strong as your business continues to grow.