Home office costs

Conditions

1. Sole traders and partnerships can use HMRC's simplified flat rate for household running costs. The rates are £10 a month for 25 to 50 hours of business use per month, £18 a month for 51 to 100 hours, and £26 a month for 101 and more. GOV.UK states that you can only use simplified expenses if you work for 25 hours or more a month from home.
2. The hours the flat rate is measured on are set by statute. S94H(4) ITTOIA 2005 counts the number of hours spent wholly and exclusively on qualifying work, and S94H(4A) defines qualifying work as work done by the person, or any employee of the person, in the person's home wholly and exclusively for the purposes of the trade — or, where the person is a firm, work done by a partner, or any employee of the firm, in the partner's home wholly and exclusively for those purposes. S94H(4B) adds that where more than one person does qualifying work in the same home at the same time, any hour spent wholly and exclusively on that work is to be taken into account only once.
3. Taking the flat rate does not close off the rest of the house. BIM75010 states that use of the flat rate deduction for household running costs does not prohibit a separate deduction for fixed costs such as council tax (or domestic rates in Northern Ireland), insurance and mortgage interest, where an identifiable proportion can be attributed to business use, and that it does not prohibit a separate deduction for telephone and broadband/internet connection costs either.
4. Telephone and broadband are not household costs at all. BIM47820 states that telephone and broadband costs do not relate to the home itself and are not household expenses, and that this applies whether use of home expenses are based on actual costs or the flat rate amount. It allows the cost of business calls, plus a proportion of the line rental based on the ratio of trade use to total use, and treats expenditure on an internet connection as allowable to the extent that the connection is used for trade purposes.
5. There is a separate simplification for light private use. BIM47820 states that where private use is not significant, the full cost of telephone and broadband service can be claimed as a business expense, and records that this simplification is not a part of the simplified expenses legislation introduced for 2013-14 and later tax years.
6. Claiming actual costs turns on periods of solely trade use, not on owning a dedicated room. BIM47810 states that wholly and exclusively does not mean that part of the home must be permanently used for trade purposes and not used for any other purpose at any other time, and that the question is whether there are periods when part of the home is being used solely for trade purposes. The courts have approved apportioning household expenses, and BIM47815 names the factors as area, usage and time.
7. For a sole trader the whole-house fixed costs are apportionable rather than excluded. BIM47820 lists council tax (domestic rates in Northern Ireland), mortgage interest, insurance, water rates, general repairs and rent among the costs that relate to the whole house and have to be paid even if there is no trade use, and states that a part of these costs is allowable if part of the home is set aside solely for trade use for a specific period. Repayments of mortgage capital are not allowable. BIM72030 states that calculating profits or losses of a trade using the cash basis does not usually affect the types of expenses which are allowable, its only exceptions being the specific rules on capital expenditure and the restrictions for car hire.
8. A limited company cannot use the sole trader's route. GOV.UK states that simplified expenses cannot be used by limited companies or business partnerships involving a limited company, and BIM47800 states that its use of home chapter applies to Income Tax only and does not apply to the use of home by an employee or director. A company's route is the exemption at section 316A ITEPA 2003 for payments that meet or reimburse an employee's additional household expenses.
9. That exemption needs homeworking arrangements, not merely work done at home. EIM01472 accepts that there are homeworking arrangements where two tests are met: there must be arrangements between the employer and the employee, and the employee must work at home regularly under those arrangements. It states that the exemption does not apply where an employee works at home informally and not by arrangement with the employer, for example where an employee simply takes work home in the evenings, and that the exemption may also apply where the arrangement involves hybrid or flexible working.
10. Within the guideline rate the company reports nothing. GOV.UK sets two conditions for the employer: the employee is working at home as agreed with the employer and regularly works from home under those arrangements, and the amount given is no more than the employee's additional household expenses or no more than the current weekly limit. GOV.UK's weekly tax limit for the tax years 2020 to 2021 onwards is £6.00 (or £26 a month for employees paid monthly), and EIM01476 states that if the £6 guideline rate is paid the employee does not have to keep any records to demonstrate the additional expenditure. NIM05682 states that such payments are disregarded for National Insurance purposes because they are reimbursements of expenses actually incurred by an earner in carrying out his employment.
11. Paying above the guideline rate is allowed on evidence, and is not automatically earnings. EIM01476 states that the £6 per week guideline rate is not a maximum and that greater amounts can be paid where the employer provides evidence to justify them, and NIM05682 states that greater amounts can be paid without a tax or NICs liability arising as long as the employer is able to provide evidence that such sums have been incurred. GOV.UK states that payments exceeding the employee's additional household expenses count as earnings, and that the employer works out the excess, adds it to the employee's other earnings, and deducts and pays PAYE tax and Class 1 National Insurance through payroll.
12. EIM01476 gives two ways to justify paying more, and the scale-rate route is agreed with HMRC, not set by the employer alone. EIM01476 is HMRC's guidance to its own officers, and states that the employer can agree with HMRC in advance on a scale rate payment calculated to do no more than reimburse the average additional costs that employees meet while working at home. It states that where a scale rate has been agreed on records of costs kept by employees, it is not necessary for employees to keep subsequent evidence of costs incurred. Or the employer may prefer to reimburse the actual additional costs incurred by each employee, in which case EIM01476 expects records showing how the payments have been computed.
13. Not every household cost can be reimbursed tax-free. EIM01474 gives the exempt costs as the reasonable additional household expenses incurred in carrying out the duties at home — typically the additional costs of heating and lighting the work area or the metered cost of increased water use, with possible increased charges for Internet access, home contents insurance or business telephone calls. It excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates, and expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.
14. Broadband is the exception inside that list. EIM01475 states that where an employee who begins to work from home under homeworking arrangements is already paying for a broadband internet connection at home, there is no additional expense, so the employer cannot reimburse the employee's broadband internet charges tax free under Section 316A, and any such payment the employer may decide to make should be subject to PAYE and NICs. It states that where the employee does not already pay for a broadband internet connection at home, and needs one in order to work from home under homeworking arrangements, the broadband fee is an additional household expense that the employer can reimburse tax free. GOV.UK sets the same three conditions: a broadband connection was not already available, they need it to work from home, and it is mainly used for business purposes.
15. An employee can no longer deduct unreimbursed household expenses. GOV.UK states that from the tax year 6 April 2026 to 5 April 2027, you will not be able to claim tax relief for working from home, and that you can still claim for the 4 previous tax years. EIM32759 states that from 6 April 2026 onwards, a deduction from earnings is no longer permitted for an employee's additional household expenses, and that legislation introduced at section 360B ITEPA 2003 prevents a deduction under section 336 ITEPA 2003 for them. EIM32759 also states that the removal of deductions for household expenses only applies to unreimbursed household expenses.
16. The 4 backdatable years carry their own eligibility test, and choosing to work from home does not meet it. GOV.UK states that you can claim tax relief if you have to work from home, for example because your job requires you to live far away from your office or your employer does not have an office, and that you cannot claim tax relief if you choose to work from home — including if your employment contract lets you work from home some or all of the time, or your employer has an office but you cannot go there sometimes because it's full.
17. EIM32760 sets out the conditions HMRC accepts for those years. It states that HMRC accepts the section 336 conditions are met where the duties the employee performs at home are substantive duties of the employment, those duties cannot be performed without the use of appropriate facilities, no such appropriate facilities are available to the employee on the employer's premises (or the nature of the job requires the employee to live so far from the employer's premises that it is unreasonable to expect them to travel to those premises on a daily basis), and at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer's premises or elsewhere. It states that if one or more of those conditions is not met it is likely that the employee will not satisfy the statutory tests in section 336.
18. For those earlier years the relief is narrow. EIM32815, which governs the tax years 2006-07 to 2025-26, states that relief can only be allowed for the additional unit costs of gas and electricity consumed while a room is being used for work, the metered cost of water used in the performance of the duties, and the unit costs of business telephone calls. It states that employees who satisfy the conditions for relief are entitled to a deduction of £6 per week, or £26 per month for monthly paid employees, exclusive of the cost of business telephone calls, for each week that they're required to work at home, without having to justify that figure, and that employees who wish to deduct more will be expected to keep records and to be able to show how their figure has been calculated. EIM32815 states that the £6 per week/£26 per month rate applies from 6 April 2020, so it covers all four of the years still claimable. GOV.UK states the same £6 a week, or the exact amount you've spent. EIM32820 states that Council Tax, rent, water rates, mortgage interest and insurance are not deductible in any circumstances.
19. The employer exemption and the employee deduction are different rules, and the one that went is the deduction. EIM32759 states that the change should not be confused with the exemption under section 316A ITEPA 2003, which continues to apply to certain homeworking payments made by employers. EIM01472 states that the exemption only applies to payments made by the employer and does not entitle an employee to deduct unreimbursed household expenses.
20. GOV.UK lists using your home as an office among the allowable rents, rates, power and insurance costs, limited to only the part that's used for business, and states that you cannot claim for any non-business use of premises, phones or other office resources.

Common mistakes

• Claiming a whole household bill because only one bill arrives. BIM47805 states that a single bill does not mean that the whole of the expenditure is disallowable, and that the part of the cost attributable to trade use is allowable — a proportion, not the lot.
• Treating the flat rate as covering everything the house costs. It covers household running costs, and BIM75010 states that using it does not prohibit a separate deduction for fixed costs such as council tax, insurance and mortgage interest where an identifiable proportion can be attributed to business use.
• Charging your own business rent for the room. BIM47820 states that a sole trader cannot charge a separate rent to his or her own trade, because individuals cannot rent property to themselves, and that the allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for trade purposes.
• Forgetting that a room kept exclusively for business can cost part of the private residence relief on a later sale. CG64663 states that the relief excludes any part of the dwelling-house which is used exclusively for the purposes of a trade, business, profession or vocation, and that a room which is used partly for business purposes and partly for residential purposes will qualify in full for relief.
• Reading the employee position as a pause that will lift by itself. GOV.UK words it as the tax year 6 April 2026 to 5 April 2027, while EIM32759 states that from 6 April 2026 onwards a deduction from earnings is no longer permitted, resting on section 360B ITEPA 2003.
• A company paying a director an allowance with no arrangement behind it. EIM01472 states that the exemption does not apply where an employee works at home informally and not by arrangement with the employer.
• Assuming the 4 backdatable years are open to anyone who worked from home. GOV.UK states that you cannot claim tax relief if you choose to work from home, including if your employment contract lets you work from home some or all of the time.
• A company reimbursing a director's existing broadband bill tax-free. EIM01475 states that where the employee is already paying for a broadband internet connection at home there is no additional expense, so the employer cannot reimburse the employee's broadband internet charges tax free under Section 316A.

What to keep

• A month-by-month record of the hours spent on qualifying work in the home if you use the flat rate, including hours worked in the home by any employee, which S94H(4A) ITTOIA 2005 counts — with any hour taken into account only once however many people worked it. S94H(3) states that the deduction for a period is the sum of the applicable amounts for each month, or part of a month, falling within the period.
• Copies of the household bills, and the basis you apportioned them on, if you claim actual costs. BIM47815 names area, usage and time as the factors, and states that if two different methods produce substantially different figures then one of them is likely to be flawed.
• A note of how the business proportion of the phone line and the internet connection was arrived at, kept separately from the use-of-home figure.
• The homeworking arrangement between a company and its director or employee. EIM01472 states that the arrangements need not be in writing but usually will be.
• Evidence behind any payment above the guideline rate. EIM01476 states that where a scale rate has been agreed on records of costs kept by employees it is not necessary for employees to keep subsequent evidence of costs incurred; where the employer reimburses actual additional costs instead, EIM01476 expects the employer to keep records to show how the payments have been computed.
• Evidence that you have to work from home, for any backdated employee claim. GOV.UK states that when you claim, you must send evidence that you have to work from home if you are claiming £6 a week for the tax year 2022 to 2023 or later, or the exact amount you've spent, and that claiming the exact amount also needs evidence such as a copy of your receipts or bills. All 4 backdatable years fall within that window.

Real-world example

A freelance designer spends about 110 hours a month on client work, invoicing and marketing in a spare room. That sits in the 101 and more band, so the flat rate gives £26 a month — £312 across a full year — with no need to apportion the gas and electricity. BIM75010 states that using the flat rate for running costs does not prohibit a separate deduction for fixed costs such as council tax, insurance and mortgage interest where an identifiable proportion can be attributed to business use, so they work out the business proportion of those as well, and claim the business share of the phone line and broadband on top of both.

Frequently asked

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