Using your home as an office has become a normal part of running a small business. According to the ONS, around one in five private sector businesses now treat homeworking as a permanent part of their model. So for a lot of the owner-managed businesses we work with, claiming something back for that dedicated desk space, the broadband, the heating — it’s a legitimate and reasonable thing to want to do.

But the rules shifted from 6 April 2026, and the change caught a lot of people off guard. Employees who were previously able to claim tax relief on home-working costs can no longer do so. That’s a meaningful difference from what many people assumed was a permanent arrangement.

The good news is that if you’re self-employed or a director of your own limited company, the position is more nuanced — and there are still valid routes to claim. The key is understanding which method applies to your situation, and which one is worth the administrative effort.

From 6 April 2026, HMRC removed the ability for employees to claim Income Tax relief on additional household costs incurred when working from home. This includes the previous flat rate of £6 per week that employees could claim without receipts — that’s gone.

HMRC’s stated reasoning was that over half of claims were found to be ineligible. Whether or not you agree with that as a justification, the change is now law for the 2026/27 tax year and onwards.

One important point for employees: you can still make retrospective claims for the four previous tax years before the 2026 change took effect, so if you were eligible and haven’t claimed, it’s worth doing that promptly.

There’s also still a route for employers to reimburse employees for genuine home-working costs — and if that’s structured correctly, it can be done without triggering tax or National Insurance. But that’s an employer-side decision, not something an employee can claim unilaterally going forward.

If you’re employed and also run a side business, the distinction matters: any home office claim relates to your self-employment or business activity, not your employment income. Two separate sets of rules, and you need to keep them clearly separated.

If you’re self-employed and use your home as an office, HMRC’s simplified expenses rules allow you to claim a flat rate based on the number of hours you work from home each month. This is the most straightforward approach for most sole traders — no receipts required, no calculations, just a consistent monthly figure that reduces your taxable profit.

Alternatively, you can work out the proportion of your home costs that relate to your business use. This approach can produce a higher deduction if you use a dedicated room exclusively for work, but it only applies to running costs — gas, electricity, and metered water. You cannot include mortgage interest, rent, or council tax in a proportional claim, as these are fixed costs regardless of whether you’re working from home or not.

In our experience, most sole traders are better off sticking with the simplified flat rate unless they have genuinely high running costs and a clearly defined workspace. The proportional route requires more justification and record-keeping, and the incremental benefit over the flat rate is often smaller than people expect.

Whatever method you use, the claim goes on your Self Assessment tax return as an allowable business expense. If you’re not sure how to categorise it, that’s the kind of thing we help clients get right as part of preparing their return.

If you operate through a limited company and work from home, the question isn’t about your personal tax return — it’s about what the company can legitimately pay you or claim. There are broadly three approaches.

1. Fixed-rate reimbursement

Your company can reimburse you £26 per month (or £6 per week) as a contribution towards home-working costs, without requiring receipts. This reduces the company’s taxable profits, and there’s no personal tax or National Insurance on the payment. It’s simple and clean, and for most directors doing a couple of days a week at home, it’s perfectly adequate.

2. Proportional household expenses

You can calculate the proportion of your actual household running costs that relate to business use — typically by reference to the number of rooms in the property and the hours worked. As with sole traders, this covers variable costs only: gas, electricity, broadband (if not already claimed separately), and metered water. Fixed costs like rent or mortgage payments are excluded.

3. Formal rental agreement

Your company formally rents a room from you at market rate. This can generate a higher deduction for the company, but the rent is personal income subject to Income Tax, and the arrangement carries potential complications around Capital Gains Tax and business rates if not handled carefully. We’d only recommend this route in specific circumstances and always with proper advice in place first.

We get asked about the formal rental agreement option fairly often — usually by directors who’ve heard it mentioned online as a way to extract more tax-efficiently from a company. The appeal is understandable: the company gets a larger deduction, and rent income can be offset against property costs, potentially leaving you better off overall.

But there are real risks here that don’t always get mentioned in the same breath.

First, any rent your company pays you is personal income. You’ll pay Income Tax on it at your marginal rate, which may be 20% or 40% depending on your total income. The net saving may be considerably smaller than the headline numbers suggest.

Second, if you rent out part of your home exclusively for business use, you may lose the main residence exemption on that portion of the property when you come to sell. That means a potential Capital Gains Tax liability on a gain you’d otherwise never have paid tax on.

Third, if the arrangement is treated as a commercial letting, the property may become subject to business rates rather than council tax for that portion — a complication most people don’t want.

We’re not saying it’s never the right answer. For some clients with a genuinely dedicated office space and a clear business case, it can work. But it’s a decision that warrants a proper conversation, not a quick Google and a template rental agreement.