Working from home is now normal for many business owners. However, the way you claim for use of home expenses depends heavily on whether you are a sole trader or operate through a limited company.
Getting this wrong can lead to disallowed expenses, unexpected tax bills, or future problems when selling your home. This guide explains the options available, how they differ, and what to watch out for.
What Does ‘Use of Home for Business’ Mean?
Use of home claims allow business owners to recover some of the additional household costs incurred when part of their home is used for business purposes. These typically include heat, electricity, broadband, and telephone costs. The key principle is that expenses must relate to business use, not personal living costs.
Use of Home Claims for Sole Traders
Sole traders have two main methods available when claiming for use of home.
1. Simplified Expenses (Flat Rate Method)
Sole traders can claim a fixed monthly amount based on hours worked from home: £10 per month for 25–50 hours, £18 per month for 51–100 hours, and £26 per month for 101 or more hours. This method is simple and avoids complex calculations but does not include council tax, rent, or mortgage interest.
2. Actual Cost Method
Alternatively, sole traders can claim a proportion of actual household costs based on the number of rooms used for business and the time spent working there. This can include heating, electricity, council tax, rent and the interest element of mortgage payments. This method can produce a higher claim but requires careful calculations and records.
Using a room exclusively for business may restrict principal private residence relief and could create a Capital Gains Tax charge when the property is sold. Using rooms for both business and private purposes usually avoids this risk.
Use of Home Claims for Limited Companies
The rules for limited companies are different, as the company does not own the director’s home. Instead, there are two common approaches.
1. Company Reimbursement of Homeworking Costs
A director is treated as an employee. The company can pay up to £6 per week (£26 per month) as a tax‑free contribution towards homeworking costs, with no receipts required and no tax or National Insurance consequences.
From April 2026, directors cannot claim homeworking expenses personally from HMRC if the company does not reimburse them.
2. Rental or Licence Agreement
In some cases, a director may charge the company rent for the use of part of their home. This requires a formal agreement and careful consideration, as the rental income is taxable personally and may create Capital Gains Tax issues. This option is generally only suitable with professional advice.
Key Differences at a Glance
Sole traders can use flat‑rate or actual cost methods and claim directly from HMRC. Limited company directors rely on company reimbursement or rental arrangements and cannot claim personally.
Summary
Use of home claims can be tax‑efficient, but the rules differ significantly depending on your business structure. Taking advice before setting up a claim can help maximise deductions while avoiding HMRC challenges and future Capital Gains Tax issues.
