Trading from home is legal for most UK businesses and gives genuine tax benefits including claiming a proportion of household costs against business income. Check the mortgage or tenancy terms first, notify the council if customers visit, and put the right insurance in place. The savings are real if you do it properly.

Roughly 1 in 8 UK SMEs operates from a residential property. For most early-stage businesses this is the right answer. Office space costs in the UK have risen substantially since 2022; running a small business from home now saves £8,000-£25,000 per year in central locations.

The legal checks

Three to do before you start:

Mortgage terms. Most residential mortgages allow incidental business use (a home office, remote work, occasional client meetings). Some require formal consent for business use. Read your mortgage conditions; if uncertain, call your lender.

Tenancy terms. Almost all residential tenancies allow you to work from home as an employee or for incidental business activity. Many restrict commercial use where customers visit regularly, where signage is required, or where significant business activity changes the nature of the property. Check the tenancy agreement.

Leasehold restrictions. Some leases (particularly flats) restrict business use. Read the lease.

Planning permission. Generally not required for working from home unless: customers visit frequently, you employ people on the premises, you store significant business stock, or the use materially changes the residential nature of the property. If in doubt, your local council planning department gives free informal advice.

Council tax vs business rates

If you genuinely work from home as a normal occupier (a laptop in the spare room, occasional meetings, no specific room dedicated solely to business), you continue paying council tax as normal.

If part of the property is used exclusively and significantly for business (a room set aside, customers visit, signage, etc.), the local Valuation Office may move that part to business rates. You then pay both:

• Council tax on the residential portion.
• Business rates on the business portion.

For most small home businesses, the business rates portion qualifies for Small Business Rate Relief (typically 100% relief below £12,000 rateable value), meaning the actual cost is often zero. But you still need to be assessed.

Allowable expenses you can claim

Two methods for claiming the home-business element:

Simplified expenses (flat rate)

HMRC publishes a flat-rate amount based on hours worked from home per month:

• 25-50 hours per month: £10 per month.
• 51-100 hours: £18 per month.
• 100+ hours: £26 per month.

So a full-time home-based sole trader can claim £312 per year against tax with no calculations or evidence required. Easy. Modest.

Apportionment of actual costs

You calculate the proportion of your home used for business and claim that proportion of:

• Rent or mortgage interest (not capital repayments).
• Council tax.
• Utilities (gas, electricity, water).
• Internet (the business proportion).
• Cleaning (only if proportionally attributable).
• Repairs (where applicable to the business area).

The apportionment is typically based on:

• Number of rooms used for business vs total rooms (excluding bathrooms and kitchen).
• Hours used for business vs total hours.

So a 6-room house with 1 room used exclusively for business 40 hours per week would claim approximately 1/6 × 40/168 = 4% of household costs.

For most full-time home workers, the apportionment method beats the simplified flat rate, often by hundreds of pounds per year.

Capital Gains Tax warning

If a room is used exclusively for business (not even occasionally for personal use), then on selling the property, the portion used for business may be subject to Capital Gains Tax. Private Residence Relief is restricted on the business-use portion.

Most home-based business owners avoid this by ensuring there's some incidental personal use of the business space - reading in there at weekends, family use of the printer, etc. The "exclusively for business" test fails, the PRR remains intact on the whole property.

This is a real CGT trap that has caught many home-based business owners on sale. Worth structuring the use to avoid it.

Insurance

Standard home insurance may not cover:

• Business equipment (computers, stock, tools).
• Liability for visitors injured during a business meeting.
• Business interruption losses.

Most insurers offer home business endorsements at a small extra cost. Some businesses with customer visits or significant equipment need a separate commercial policy.

The two specific covers to confirm:

• Public liability: £2-5 million minimum for visitors to your home.
• Professional indemnity if your business gives advice or services.

For most home-based UK SMEs, an extended home insurance policy covers it. For high-touch businesses or those holding stock, separate commercial cover is worth getting.

When to move out

Three signals it's time to leave home:

Customer visits become regular. Once you're hosting 2+ client meetings per week, the practical disruption (and the council's view of your use) tips the balance.

You employ people. Hiring someone to come to your home daily changes the nature of the use materially. Either move them to a co-working space, run them fully remote, or get a small office.

Storage outgrows you. When stock is taking up the spare room, garage, and shed, the inefficiency of operating from home costs more than the rent of a small unit.

Below those thresholds, working from home is genuinely the cheapest and most practical option for early-stage UK businesses.

Bottom line

Check mortgage and tenancy first. Pick the simplified or apportionment method for expenses based on your real hours. Get the insurance right. Avoid "exclusive business use" of any single room to preserve PRR on your home.