Working from Home: Simplified Expenses Method Explained

What Is the Simplified Expenses Method?

If you work from home as a sole trader, HMRC offers a simplified way to claim for the business use of your home. Instead of calculating the actual proportion of your household bills, you simply claim a flat monthly rate based on how many hours you work from home each month.

This method is designed to reduce the record-keeping burden for sole traders. There's no need to gather utility bills, calculate room proportions, or track heating costs — you just need to know how many hours you work from home.

The Flat Rates

For the 2025/26 and 2026/27 tax years, the simplified expenses rates for working from home are:

| Hours Worked from Home per Month | Flat Rate per Month | |----------------------------------|---------------------| | 25 to 50 hours | £10 | | 51 to 100 hours | £18 | | 101 hours or more | £26 |

If you work fewer than 25 hours from home per month, you cannot use the simplified expenses method for home costs.

Annual Totals

Over a full year:

| Hours per Month | Monthly Rate | Annual Claim | |-----------------|-------------|--------------| | 25-50 hours | £10 | £120 | | 51-100 hours | £18 | £216 | | 101+ hours | £26 | £312 |

Who Can Use Simplified Expenses?

The simplified expenses method for working from home is available to:

• Sole traders
• Business partnerships

It is not available to limited companies. Directors of limited companies who work from home need to use a different method (typically the employer pays the employee a tax-free allowance of up to £6 per week).

How to Calculate Your Hours

Count the hours you spend working from home each month. This includes:

• Time spent on business administration
• Client work done from home
• Phone calls and video meetings taken from home
• Business-related emails and correspondence
• Record-keeping and bookkeeping

It does not include:

• Time spent doing personal tasks during breaks
• Hours when you're at home but not actually working
• Travel time

Be honest with your calculations. If you work a standard 8-hour day from home, five days a week, that's roughly 160 hours per month — comfortably in the 101+ bracket at £26/month.

If you work from home three days a week, that's roughly 96 hours — qualifying for the £18/month rate.

What the Flat Rate Covers

The simplified expenses flat rate is intended to cover all household running costs associated with working from home:

• Electricity
• Gas and heating
• Water rates
• Council tax (the business proportion)
• Broadband and internet
• Home insurance (the business proportion)
• Mortgage interest or rent (the business proportion)
• General maintenance and repairs

Important: Once you choose the simplified method, you cannot also claim actual costs for these items separately. The flat rate is meant to cover everything.

However, you can still claim separately for:

• Phone costs (mobile or landline — these are separate from home running costs)
• Business-specific costs like dedicated business phone lines
• Equipment and furniture used for work (capital allowances or revenue expenses)

Simplified vs Actual Costs: Which Is Better?

The simplified method is straightforward but often produces a lower claim than the actual costs method. Let's compare:

Example: Simplified Method

Emma works from home full-time (160 hours/month).

• Annual claim: 12 x £26 = £312

Example: Actual Costs Method

Emma's annual household costs:

| Cost | Annual Total | |------|-------------| | Gas and electricity | £2,400 | | Broadband | £420 | | Water rates | £450 | | Council tax | £1,800 | | Home insurance | £360 | | Mortgage interest | £4,800 | | Total | £10,230 |

Emma uses one room out of five in her house, and works from home five days out of seven.

Business proportion: 1/5 (room) x 5/7 (time) = 14.3%

Annual claim: 14.3% x £10,230 = £1,463

In this example, the actual costs method gives Emma a claim nearly five times larger than the simplified method.

When Simplified Expenses Make Sense

Despite the lower claim, simplified expenses can be the right choice when:

• Your household costs are low. If you live in a small, inexpensive property, the actual costs calculation might produce a similar or even lower figure.
• You want minimal record-keeping. No need to gather utility bills or calculate proportions.
• You rent and can't easily separate costs. If bills are included in your rent or shared with housemates, calculating actual costs can be complicated.
• You work from home only part-time. If you work from home 25-50 hours per month, the actual costs calculation might not yield much more than £10/month anyway.

When Actual Costs Are Better

• You have high household costs (especially mortgage interest or rent)
• You have a dedicated room used exclusively for business
• You work from home full-time
• You live in an expensive area with high council tax and utility costs

See our detailed guide on claiming actual costs for business use of home for the full methodology.

Switching Between Methods

You can switch between simplified and actual costs from one tax year to the next. However, within a single tax year, you must use one method consistently.

If you're unsure which gives the better result, calculate both for a typical month and compare.

Record-Keeping

For simplified expenses, you need to keep a record of:

• The hours you work from home each month
• A note confirming you've used the simplified expenses method

That's it. No utility bills, no room measurements, no complex calculations.

With Accounted, you can tell Penny your working-from-home pattern, and she'll calculate and apply the correct simplified expenses rate automatically each month.

Common Mistakes

Claiming both simplified and actual costs. You can't do both in the same tax year for home-related costs.

Forgetting to claim at all. Many home-based sole traders overlook this deduction entirely.

Using the wrong hours bracket. Track your hours honestly — moving from the 51-100 bracket to the 101+ bracket is worth an extra £96 per year.

Not considering actual costs. If you own your home and have a mortgage, the actual costs method could save you significantly more.

Start claiming your home working costs today. Sign up to Accounted and Penny will track it all for you.