Simplified Expenses and Working from Home Tax Relief: A Practical Guide for the Self-Employed and Employed

With increasing costs of running a business and working from home, taxpayers are constantly looking for ethical ways to minimise their tax bill while remaining fully compliant with the United Kingdom (UK) tax laws. Understanding expenses and the rules on their deductibility for tax purposes therefore plays a key role in ensuring tax efficiency for taxpayers.

This article therefore focuses on the simplified expenses scheme and working from home (WFH) tax relief, explaining how these reliefs apply to self-employed and employed taxpayers respectively. It outlines what each relief covers, eligibility for claim, and other considerations taxpayers should be aware of in this regard.

Simplified Expenses

Chapter 5A of the Income Tax (Trading and other Income) Act, 2005 provides the legal basis for deductions allowable at a fixed rate, i.e., simplified expenses, and the expense categories covered include expenditure on motor vehicles, use of home for business purposes and use of business premises for private purposes. Under this scheme, eligible taxpayers can claim a fixed-rate deduction when calculating their taxable profits instead of deducting their actual business expenditure. Therefore, as the name suggests, the scheme simplifies the tax reporting process by removing the need to calculate and apportion certain costs, reducing both the record-keeping requirements and the administrative burden associated with preparing tax computations.

This relief is available to all sole-traders and business partnerships where no corporate entity is a partner, and the flat rate amount claimable is determined as follows:

For vehicle expenditure, the simplified expenses scheme covers the purchase cost as well as the costs of running and maintaining the relevant vehicle. It does not however cover incidental costs such as toll or parking fees. Therefore, such costs would still need to be tracked separately and can be claimed where there have been incurred for business purposes. It is important to note also, that where capital allowance was previously claimed or the vehicle cost fully expensed, this scheme cannot be applied as doing so would amount to making a double claim.

Under the use of home for business purposes, this scheme allows taxpayers to claim a flat rate deduction for household running costs such as light and heat costs. However, other costs incurred wholly or partly for the business such as internet or mobile fees, council tax, repairs may be tracked separately and claimed appropriately.

The flat rate deduction under the use of business premises for private purposes allows qualifying taxpayers to claim only the business portion of the costs of rent, services, utilities, household goods, food and non-alcoholic drinks. The flat rate amount is simply taken as a deduction from the total costs incurred and the remainder is deemed the business cost. Taxpayers may still track other costs such as council tax, mortgage interest and claim these appropriately where they relate to the business.

WFH Tax Relief

Under Section 336 of the Income Tax (Earnings and Pensions) Act, 2003, an employee was previously able to deduct an amount from their earnings if the employee is obliged to incur and pay that amount by virtue of their employment and the purpose is wholly, exclusively and necessarily for the performance of their employment duty. Based on the foregoing, HMRC allowed qualifying employees to claim a flat rate amount of £6 a week (£312 a year) as WFH tax relief before April 2026. This relief could be claimed instead of tracking actual expenses incurred by the employee.

Unlike the simplified expenses scheme, this tax relief was available only to the employed and eligible for employees who are required to work from home. It could not be claimed simply because an employee chooses to work from home sometimes or because the employer’s office is sometimes fully occupied thus, preventing the employee from working there sometimes. For an avoidance of doubt, this tax relief could only be claimed by employees where there is an established home working arrangement with the employer.

It is important to note that this tax relief can only be claimed on homeworking expenses incurred solely for the employment purposes. Expenses which are used both privately and for employment purposes cannot be claimed. This is particularly important for employed taxpayers who decide to claim actual costs instead of the flat rate amount. Where actual costs are claimed, taxpayers are expected to keep records of the invoices/documentation to support their claim in the event of a His Majesty’s Revenue and Customs (HMRC) enquiry.

Other Key Considerations

From 6 April 2026, the flat rate deduction under the WFH tax relief is abolished. This means that from this date, employees who incur qualifying homeworking costs for the purpose of their employment can no longer claim the flat rate of £6 per week (£312 per year). All hope is not lost though as employed taxpayers can be reimbursed qualifying homeworking costs by their employers in place of the flat rate deduction. However, it is important to note that reimbursements over £6 per week must be supported by invoices/documentation by the employee.

Both employed and self-employed taxpayers should carefully assess their work-related expenses to determine whether they qualify for these reliefs. Doing so can help minimise their tax liability and ensure they are not leaving money on the table by overlooking deductions to which they are entitled. Please contact us today on 0151 709 9999 or email info@amyerson.com if you have any questions or concerns on how these tax reliefs could impact your tax reporting.