Use of home as office: Are you claiming?

With remote and hybrid working now firmly embedded in British working life, understanding the tax treatment of working from home remains important. The rules differ depending on whether the worker is an employee, self-employed or a company director and choosing the right method can make a noticeable difference to the overall tax position.

Employees: Employer reimbursement only

Since 6 April 2026, employees can no longer claim tax relief directly from HMRC. However, employers may reimburse qualifying home working expenses free of income tax and National Insurance contributions.

A flat rate allowance of £6 per week may be paid without requiring supporting evidence of actual expenditure. Alternatively, where additional household costs exceed £6 per week, the employer
may reimburse the actual extra expenditure incurred. Evidence should be retained to demonstrate that the payment relates to genuine additional household running costs arising from business use of the home, such as increased heating, electricity or metered water charges. No special transitional relief exists for employees who originally claimed directly from HMRC, but claims can be made for any tax year, up to four years back to 2022/23.

Where an employee already had an existing home broadband connection, the employer cannot normal reimburse the standing monthly subscription tax- free. However, additional business-related costs may still qualify. Where a new connection is installed specifically because the employee is required to work from home, reimbursement may be possible without a tax charge.

Self-employed: Simplified or actual costs

The position for the self-employed is more flexible. Unlike employees, the self-employed may claim expenses incurred ‘wholly and exclusively’ for the purposes of the trade.

There are two methods available. The first is under the ‘simplified expenses’ regime, which allows a flat rate deduction based on the number of hours worked from home each month. This avoids the need for detailed calculations and is often suitable where costs are relatively modest.

The second method is to claim a proportion of actual running costs. This can include electricity, gas, council tax, rent, mortgage interest, insurance and broadband, apportioned on a reasonable basis such as the number of rooms used and the time spent working from home. Care should be taken to ensure that only the business proportion is claimed.

Directors: Formal home office arrangements

Company directors can also receive tax-free reimbursement of home working expenses from their company. In many cases, however, a more beneficial arrangement may be available through a
formal licence agreement under which the company pays the director for the use of part of the home as office space.

Under such an arrangement, the payment is typically calculated by reference to household running costs, apportioned according to the number of usable rooms and the extent of business use. Kitchens, bathrooms and hallways are usually excluded from the calculation. Where business use is only part-time or occasional, a further adjustment should be made.

The agreement should be documented in writing, specify a defined period and make clear that the room is not used exclusively for business purposes (assuming of course that this reflects the actual arrangements). This is important because exclusive business use could restrict entitlement to capital gains tax (CGT) principal private residence relief when the property is eventually sold, potentially exposing part of any gain to CGT. The rent received by the director may need to be disclosed on the director’s self-assessment tax return as property income. In most cases, a corresponding proportion of household running costs can be deducted, often resulting in little or no taxable profit arising.

Practical tip

For many workers, a simple employer reimbursement or simplified expenses claim will be sufficient and administratively straightforward. Those with materially higher household costs may benefit from calculating actual expenditure instead. For company directors, a carefully drafted licence agreement can often provide the most tax-efficient result, provided the arrangement is commercially reasonable, properly documented and regularly reviewed.

Disclaimer: The information provided on AccountingFirms.co.uk is for general informational purposes only and should not be considered professional accounting, tax, or legal advice. Always consult a qualified accountant or tax adviser for advice tailored to your individual circumstances.