If you run a business from premises that are mainly used for the business but are also your home, such as a guest house, bed and breakfast or small care home, you can take all the premises costs and deduct a fixed monthly amount for private use instead of apportioning each bill. The private use amounts are £350 a month for one occupant, £500 for two and £650 for three or more. Mortgage interest, business rates and council tax sit outside the flat rate and are apportioned in the normal way.

Who can use the business premises flat rate?

The rule is in section 94I of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) and HMRC explains it at BIM75015. All of these conditions must be met:

  • you carry on a trade at the premises;
  • the premises are used mainly for the trade, but are also used as a home by you or, in a partnership, by a partner;
  • you incur expenses on the premises that are mainly, but not wholly and exclusively, for the trade;
  • a deduction for the business part of those expenses would otherwise be due under the normal apportionment rule in section 34(2).

GOV.UK gives a guesthouse, bed and breakfast or small care home as examples, and HMRC adds small nursing homes. The test is about which use is greater. A shop with a flat above it, or a home with a spare room used as an office, will not normally qualify because the home use is the larger part or is separate. For a home office, see our page on claiming use of home when self employed; if the flat above a shop is let to someone else, see letting a flat above your business premises.

Like the other simplified expenses, the method is open to sole traders and partnerships made up only of individuals, not to limited companies. It is optional, and can be used with the cash basis or traditional accounting.

How is the deduction worked out?

Section 94I(3) gives the deduction as the premises expenses less the non business use amount. That amount is the total of a monthly figure from section 94I(5):

Relevant occupants in the month Private use amount for the month
1 £350
2 £500
3 or more £650

The figure is worked out month by month, so changes in the household during the year are reflected. GOV.UK confirms that if someone lives at the premises for only part of the year, you use the relevant rate only for the months they are there.

Who counts as an occupant?

Section 94I(6) defines a relevant occupant for a month as anyone who, at any time in that month, occupies the premises as a home or stays there other than in the course of the trade. HMRC confirms at BIM75015 that this includes non paying guests and children. Paying guests and residents do not count because they are there in the course of the trade. A relative who stays for a few nights without paying counts as an occupant for that month, which can move the household into a higher band.

Which costs does the flat rate cover?

HMRC says at BIM75015 that the flat rate reflects the private share of spending on household goods and services, rent, utilities, food and non alcoholic drinks. Those costs go into the calculation in full and the flat amount comes off.

Mortgage interest, business rates and council tax (or domestic rates in Northern Ireland) are excluded from the flat rate. The trade share of those is still deductible, but you work it out on the normal basis, for example by area. Costs that are wholly private, such as personal clothing, are never part of the calculation, and capital spending on the building goes through the normal capital rules.

How does it work in practice?

Illustration only. A couple run a five bedroom guest house as partners and live in two rooms. Their son lives with them except for eight months at university. Food, utilities, laundry, cleaning materials and household goods for the year total £18,000.

  • 8 months with 2 occupants: 8 x £500 = £4,000
  • 4 months with 3 occupants: 4 x £650 = £2,600
  • private use amount: £6,600
  • deduction: £18,000 less £6,600 = £11,400

Separately, if the partners’ own rooms are one seventh of the floor area, roughly six sevenths of the mortgage interest, business rates and council tax would be claimed on the normal basis. HMRC’s own example at BIM75015 is a bed and breakfast owner whose son leaves for university: the private amount moves from £350 a month to £500 a month for the months he is home.

Why not just apportion the actual bills?

You can, and it is the default. But apportioning food and utilities in a guest house is hard to evidence. Living costs are not allowed simply because living on site is a condition of the business: in McLaren v Mumford, summarised at BIM37930, a publican required by his tenancy to live in the pub still had a share of rent, rates, light, heat and insurance disallowed, because part of the spending met his own living needs. HMRC adds at BIM75015 that if you do not use the flat rate, you must keep enough records to identify the trade share of the costs the flat rate would have covered. Before 2013 many guest houses used local board and lodging agreements with HMRC officers; those were withdrawn, and the flat rate replaced them.

What if you have more than one such property?

Section 94I(6A) says that if you use the flat rate for one set of premises that is both home and business, you must use it for any other premises in the same position for that period. You cannot pick the flat rate for one property and apportion the bills for another.

Are there capital gains tax points?

Private residence relief is only restricted for parts of a home used exclusively for business. HMRC’s Capital Gains Manual at CG64663 uses the example of a small guest house kitchen used to cook for both guests and the owner: because it is not used exclusively for the trade, it is not excluded from relief, even though part of its running costs are deductible for income tax. Guest bedrooms used only by paying guests are a different matter. Our page on business use and private residence relief explains the apportionment.

What mistakes come up most often?

  • Using the flat rate where the property is mainly a home, such as a family house letting one room.
  • Leaving out children or non paying visitors when counting occupants.
  • Putting mortgage interest, business rates or council tax into the total before deducting the flat amount, and then claiming them again.
  • Applying the rate to a property business. Section 94I applies to trades, so an ordinary rental property cannot use it.
  • Mixing methods between two qualifying properties in the same period.

The general rules on which premises costs are allowable are in our guide to allowable business expenses.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.