Making Tax Digital · Sole traders
Working from home: simplified flat rates vs actual costs
ONLY£15A MONTHWorking from the kitchen table or a spare room creates real business costs, but it does not make every household bill deductible.
Working from the kitchen table or a spare room creates real business costs, but it does not make every household bill deductible. Sole traders can compare a simplified home-working allowance with a reasonable share of actual costs. The right method depends on the facts and the records you can support.
The simplified home-working rates
HMRC's monthly flat rates depend on qualifying business hours at home:
| Hours in the month | Flat-rate deduction |
|---|---|
| 25–50 | £10 |
| 51–100 | £18 |
| 101 or more | £26 |
The flat rate does not include telephone and internet: calculate the business proportion of those separately. Below 25 hours, consider an appropriate actual-cost claim rather than automatically claiming £10.
Calculating actual costs
Identify eligible household costs, then use a reasonable allocation reflecting space, time and actual use. A room-count formula is an example, not an HMRC requirement to divide every bill equally. Exclude mortgage capital repayments and private expenditure.
Exclusive business use of part of a home can affect Private Residence Relief on sale. Do not artificially describe a genuinely mixed-use room as permanently business-only to increase a claim. Keep the allocation consistent with how you actually live and work.
Worked example: compare the approaches
Nina works 80 qualifying hours at home each month. The simplified running-cost deduction is £18 × 12 = £216. She separately calculates £144 of business telephone and internet costs.
Her supported actual-cost calculation for the other household expenses is £540. The comparison is therefore £360 under the simplified approach including communications, against £684 using the actual approach. Those are deductions, not cash refunds. Nina keeps the bills and the basis of her actual-cost allocation.
Start with the business purpose
An expense category describes a cost; it does not decide whether the cost qualifies for relief. The starting point is whether the spending was for the trade. Where an identifiable part was private, keep that part out of the claim. A personal withdrawal is not an expense simply because it leaves the business bank account.
HMRC's self-employed expenses guide explains the distinction between running costs, capital expenditure and private use. For example, a supplier may sell both equipment and household products. The shop's name is useful evidence, but the invoice tells you what you bought.
Record the full transaction and the business calculation clearly. If a £120 bill has £30 of identifiable private spending, a £90 business claim is easier to explain when both amounts and the reason for the split are retained. Do not delete the private part merely to force the bookkeeping total to resemble the tax deduction.
Nor is a deduction a reimbursement. Spending £100 to save a fraction of that amount in tax still leaves you with a real cost. Buy what the business needs, keep appropriate evidence and claim the relief available under the correct rules.
Keep the evidence connected to the figures
Your digital record should explain the amount, date and nature of the transaction. Keep the invoice, receipt, statement or other evidence that supports it. A photograph can make a paper document easier to retain, but a folder of photographs alone does not create complete transaction records.
For sole traders, HMRC normally requires business records to be kept for at least five years after the relevant 31 January filing deadline. Keep them longer where the rules for a late return, enquiry or other circumstances require it. Check the record-retention guidance.
Make the records usable by your future self. Include a short explanation where a bank description is vague, retain the calculation behind a business-use split and make corrections traceable. For a missing receipt, try the supplier account, email confirmation or a replacement invoice before relying on incomplete evidence.
At review time, compare your records with the bank or payment account and investigate differences. Equal totals are useful, but two errors can cancel each other out. A sample of individual transactions can reveal a duplicated purchase or an omitted customer receipt that a totals-only check misses.
Where this fits into Making Tax Digital
For 2026/27, the first mandatory phase generally covers individuals whose combined qualifying self-employment and property income was more than £50,000 in 2024/25, subject to exemptions. Qualifying income normally means income before expenses. It is a different figure from taxable profit. Check the qualifying-income rules.
Once within MTD, keep the required digital records and send quarterly summaries for each relevant business. The summaries are cumulative from the start of the reporting year. They do not contain your entire personal tax position, and sending one does not itself create a quarterly tax-payment demand.
HMRC does not require accounting or tax adjustments before each quarterly update. Those adjustments and the other information needed for the annual return still have to be completed at the appropriate stage. Keep a review list so a matter deferred until year end is not forgotten. Read HMRC's quarterly-update guidance.
Software can organise the information, but the business facts remain essential. Review the figures you approve rather than assuming that a successful import has also settled every tax question.
Make a defensible choice
Keep a monthly hours record, list what each method covers and avoid claiming the same household cost twice. Review the method if your working pattern changes. A software toggle can apply a calculation, but it cannot decide how much of your home was genuinely used for the business.
Take the next step
Avona.app offers a self-service route from £15/month. Bring your records together, review the figures and choose a workflow that fits your business. For professional help, discuss the scope and total price of Avona Concierge, managed by chartered accountants, before choosing a service.