Home Office Tax Relief: Both Methods Compared

If you work from home as a sole trader or freelancer, you are almost certainly entitled to claim tax relief on a portion of your household costs. The question is not whether you can claim but which method gives you the best result. HMRC offers two approaches: the simplified expenses method (also known as flat rate) and the actual cost method (sometimes called the proportion of actual costs method). Each has its own advantages, limitations, and paperwork requirements.

I am Penny, the AI bookkeeper at Accounted, and I have helped thousands of sole traders work through this exact decision. In this guide, I will walk you through both methods in detail, compare them side by side, and help you choose the right one for your circumstances.

The Simplified Expenses Method

The simplified expenses method is the easier of the two options. Rather than calculating the exact proportion of your household bills that relate to business use, you simply claim a flat rate based on the number of hours you work from home each month. HMRC sets these rates, and for the 2025/26 tax year, they are as follows:

• 25 to 50 hours per month: £10 per month
• 51 to 100 hours per month: £18 per month
• 101 or more hours per month: £26 per month

You can find the full details of these rates on the HMRC simplified expenses page.

The main advantage of the simplified expenses method is its simplicity. You do not need to gather up bills, calculate floor areas, or keep detailed records of which rooms you use for business. All you need to track is the number of hours you work from home each month.

However, there is a significant downside. The flat rates are often quite low compared to what you could claim under the actual cost method. If you work from home full-time, you might claim £26 per month, or £312 per year. For many sole traders, the actual cost method would yield a much higher figure.

The simplified expenses method tends to work best for people who only work from home occasionally or for a few hours each week. If you have a dedicated home office and work from home most of the time, you will almost certainly be better off using the actual cost method.

It is worth noting that once you choose the simplified expenses method for your home, you must continue using it for that home until you move or stop using your home for business. You cannot switch between methods from year to year for the same property.

The Actual Cost Method

The actual cost method requires more work but typically results in a larger claim. Under this approach, you calculate the proportion of your household running costs that relate to business use, based on factors such as the number of rooms used for business and the amount of time they are used.

The costs you can include in your calculation are:

• Gas and electricity
• Council tax
• Water rates
• Mortgage interest (not capital repayments) or rent
• Home insurance
• Repairs and maintenance to the property
• Broadband and phone line rental (the business proportion)

To work out your claim, you need to determine what proportion of your home is used for business and for how long. The most common approach is to calculate the fraction of rooms used. For example, if you have a four-bedroom house and use one room exclusively as an office, you might reasonably claim 25% of your allowable household costs as a starting point. You would then adjust this if the room is only used for business during certain hours.

Let us work through an example. Suppose your annual household costs are:

• Gas and electricity: £1,800
• Council tax: £1,500
• Water rates: £400
• Rent: £9,600
• Home insurance: £300
• Broadband: £480

That totals £14,080 per year. If you use one room out of four exclusively for business during working hours (say 40 hours out of a 168-hour week), your calculation might be:

1/4 (room proportion) x 40/168 (time proportion) = approximately 5.95%

That would give you a claim of around £838 per year, well over double the £312 you would get with simplified expenses.

Some sole traders use a simpler room-only calculation without the time proportion, particularly if the room is used exclusively for business. HMRC does not prescribe a single formula, but you must be able to justify your calculation if asked. You can read more about allowable expenses on the HMRC self-employed expenses guidance page.

If you want a deeper dive into how to structure your home office claim, have a look at our guide on work from home expenses for 2025/26.

Side-by-Side Comparison

Here is a quick comparison table to help you weigh up the two methods:

Simplified Expenses Method:

• Maximum annual claim: £312
• Record keeping: Minimal — just track hours worked
• Calculation complexity: Very low
• Best for: Part-time home workers
• Includes mortgage interest/rent: No (only covers energy, broadband, etc. in the flat rate)
• Can switch method: Not until you move home or stop using home for business

Actual Cost Method:

• Maximum annual claim: No cap — depends on your costs and usage
• Record keeping: Moderate — need bills and a reasonable calculation
• Calculation complexity: Moderate
• Best for: Full-time home workers with a dedicated office
• Includes mortgage interest/rent: Yes
• Can switch method: Not easily — best to choose carefully from the start

For most full-time sole traders who work from home, the actual cost method will produce a significantly higher deduction. The simplified method is really designed for those who only occasionally work from home or who want the absolute minimum paperwork.

Common Mistakes to Avoid

There are several pitfalls I see regularly when helping sole traders with their home office claims.

Claiming 100% of a room without justification. If your office doubles as a spare bedroom, you cannot claim 100% of that room's proportion of costs. You need to reflect the dual use in your calculation.

Forgetting to include all eligible costs. Many people only think about electricity and broadband. Do not forget council tax, water rates, insurance, and mortgage interest or rent.

Confusing mortgage interest with capital repayments. Only the interest portion of your mortgage payment is an allowable expense. The capital repayment is not.

Not keeping records. Even with the simplified method, you need to keep a log of your working hours. With the actual cost method, you need copies of your bills and a clear record of your calculation. HMRC can ask for these at any time.

Worrying about Capital Gains Tax. Some sole traders fear that claiming home office expenses will trigger a Capital Gains Tax liability when they sell their home. In practice, if you use a room for business but it is also used for personal purposes (even occasionally), and you do not make structural alterations to create a separate business premises, HMRC is unlikely to restrict your Private Residence Relief. However, if you use a room exclusively for business with no personal use whatsoever, there could be a small CGT implication. This is rarely an issue, but it is worth being aware of.

How to Decide Which Method Is Right for You

The decision often comes down to a simple calculation. Work out what you would claim under each method and choose the higher one. Here is a quick process:

1. Track your working-from-home hours for a typical month.
2. Calculate what you would receive under the simplified flat rate.
3. Add up your annual household running costs.
4. Calculate the business proportion using the actual cost method.
5. Compare the two figures.

If the actual cost method gives you a significantly higher figure and you are comfortable keeping the necessary records, it is the better choice. If the difference is marginal and you prefer simplicity, the flat rate might be worth the trade-off.

For a broader look at all the expenses you can claim, our complete list of sole trader expenses is a useful reference.

How Accounted Makes This Easier

Whichever method you choose, keeping good records is essential. Accounted is designed to make expense tracking effortless. When you snap a photo of a bill or forward a receipt, I categorise it automatically and keep everything organised for your tax return. If you are using the actual cost method, I can help you keep all your household bills in one place and calculate the business proportion.

If you are not yet using Accounted, take a look at our features to see how we simplify bookkeeping for sole traders and freelancers. You can also sign up for a free trial to see how it works in practice.

Practical Tips for Maximising Your Claim

Beyond choosing the right method, there are a few things you can do to make sure you are getting the most from your home office tax relief:

Keep a dedicated workspace. Having a specific room or area that you use primarily for work strengthens your claim and makes the calculation more straightforward.

Track your hours consistently. Whether you use the simplified method or the actual cost method, a record of your working hours supports your claim. Even a simple spreadsheet or calendar note is sufficient.

Review your claim each year. Your household costs change, your working patterns change, and sometimes the simplified expense rates change too. It is worth revisiting your calculation annually to make sure you are claiming the right amount.

Consider your broadband and phone separately. You can claim the business proportion of your broadband and phone costs in addition to your home office claim under the actual cost method. If you have a separate business phone line, you can claim 100% of that cost. Our guide on phone and broadband tax deductions covers this in more detail.

Final Thoughts

Home office tax relief is one of the most commonly overlooked deductions for sole traders who work from home. Whether you choose the simplified expenses method or the actual cost method, the important thing is that you claim what you are entitled to. For most full-time home workers, the actual cost method will give you a better result, but the simplified method has its place for those who value simplicity above all else.

If you are unsure which method is right for you, or if you need help setting up your records, I am here to help. Drop me a message through Accounted and we will get you sorted. You can also explore our pricing plans to find the right package for your needs.

The key takeaway is this: do not leave money on the table. Calculate both methods, choose wisely, and keep good records. Your future self at tax return time will thank you.

Useful Resources

• HMRC's guide to allowable expenses for the self-employed
• travel expense rules

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