Can a sole trader claim rent as a business expense?

Introduction: why “rent” is a tricky but common question for sole traders

If you’re a sole trader, rent can feel like one of those expenses that should obviously reduce your tax bill. After all, you need somewhere to work. But the tax treatment of rent depends heavily on what you are renting, why you are renting it, and how closely it relates to your business activities. Rent can be a straightforward deductible expense when you rent premises used wholly for business. It can also be partially deductible when you work from home or when a rented space has mixed use. And sometimes it is not deductible at all, or only deductible in a limited way, especially where the expense is personal in nature or not incurred “wholly and exclusively” for business purposes.

This article explains, in practical terms, when a sole trader can claim rent as a business expense, how to work out the deductible amount, what records to keep, and what common pitfalls to avoid. It also looks at special situations such as renting part of your home, using serviced offices, sharing a workspace, and renting a property that you sometimes live in. While the principles apply broadly, you should always consider your own facts because small differences in usage patterns can have a big impact on what you can reasonably claim.

The key principle: “wholly and exclusively” for business

The starting point for most business expenses is a simple but strict idea: to be deductible, an expense must be incurred wholly and exclusively for the purposes of the trade. In plain English, that means the cost must be for your business rather than for your personal life. This is easy when you rent a workshop, retail unit, or office that you use only for business. It becomes more complicated when there is any personal benefit or private use, such as renting your home, renting a room you sometimes use for non-business activities, or renting a vehicle or storage space that is used partly for personal items.

For rent specifically, you should be asking yourself: “Would I still be paying this rent if I didn’t run the business?” If the answer is “yes” because it’s your home, then you can’t usually claim the full rent as a business expense. You might still be able to claim a fair proportion if part of the home is genuinely used for business. If the answer is “no” because you rented the space purely to run the business, then the full rent is more likely to be allowable.

It’s also worth noting that “wholly and exclusively” is about purpose, not outcome. You might rent premises that later turn out to be underused or not profitable. That doesn’t automatically stop the rent being deductible if your original purpose was business. The bigger risk is where an expense has a clear dual purpose—part business and part personal. In dual-purpose situations, you usually need to apportion the cost and claim only the business part, unless the personal element is merely incidental.

Renting business premises: when it’s usually fully deductible

If you rent a dedicated business property—an office, shop, studio, warehouse, workshop, clinic room, or other premises used only for business—then the rent is typically a straightforward business expense for a sole trader. In that scenario, the “wholly and exclusively” test is usually met because the premises exist to support the trade.

Examples of rent that is commonly fully deductible include:

• Monthly rent for a small office unit used solely for client work and administration.

• Rent for a treatment room used exclusively to provide services to customers.

• Rent for a workshop where you manufacture or repair products.

• Rent for a retail unit where you sell goods to the public.

• Rent for storage units used solely to store business stock, tools, or equipment.

Even in these cases, you should watch for anything that introduces private use. If you also sleep at the premises, keep significant personal items there, or use it for family purposes, the rent may become a mixed-use expense requiring apportionment. The more the premises resembles personal accommodation, the more careful you need to be.

Working from home: can you claim part of your home rent?

Many sole traders run their business from home, either full time or part time. If you rent your home, you may be able to claim a portion of your rent as a business expense, but you cannot normally claim the entire rent unless the home is used exclusively for business purposes and has no real private use (which is uncommon for most people’s main residence).

The underlying idea is that part of your housing costs can be treated as business costs to the extent that they relate to business use. Rent is one of those housing costs, alongside utilities, council tax, internet, and sometimes insurance. The approach is usually to claim a “reasonable and justifiable” proportion based on how much of the home is used for business and for how long.

There are two broad ways sole traders often handle home-use costs:

1) Use a simplified method (where available) that calculates a flat-rate home working expense based on hours worked at home.

2) Use an actual cost method, apportioning your real rent and household bills by a rational basis such as rooms and time.

The actual cost method can produce a larger claim in some cases, but it requires better record keeping and sensible calculations. The simplified method is easier to administer but may be less beneficial depending on your circumstances.

How to apportion rent when you work from home

If you decide to claim a proportion of your home rent, you need a method that is consistent, reasonable, and supported by evidence. A common approach is a two-step apportionment: first by space, then by time.

Step 1: apportion by space

Space apportionment often uses the number of rooms, excluding “non-usable” areas like bathrooms, hallways, and kitchens if they are not used for business. For example, if your rented home has five usable rooms (say, two bedrooms, a living room, a dining room, and a study) and you use one room as a home office, you might start with 1/5 of the rent.

Sometimes a floor area approach is more accurate, especially if rooms differ substantially in size. For example, if you use a large living room as a studio and it is much larger than other rooms, floor area might provide a fairer apportionment. The important point is to choose a method that reflects reality.

Step 2: apportion by time

If the room is not used exclusively for business all the time, you then reduce the claim to reflect time-based usage. Suppose you use the room for business 8 hours per day, 5 days per week. That’s 40 hours out of 168 hours in a week. In theory, you could apply 40/168 to the space-apportioned rent. In practice, many people use a simpler weekly or monthly estimate so long as it remains reasonable.

Putting it together

If your monthly rent is £1,500 and you have five usable rooms, the space apportionment gives £300 per month (1/5). If the room is used for business roughly 40 hours per week, applying a time factor (40/168) yields about £71.43 per month. That may feel low, but it reflects the reality that the room is also available for private living during most hours, especially overnight and weekends.

However, if the room is used almost entirely for business during normal living hours, or if you work long hours and the room is dedicated to business equipment, a higher time proportion might be appropriate. Some sole traders also consider “awake hours” rather than 24/7, but you should be careful and consistent. The safest approach is the simplest reasonable one, supported by your working pattern.

Exclusive business use at home: why it can be a double-edged sword

You may hear advice that you should have a room used “exclusively” for business. Exclusive use can make the expense more defensible from a “wholly and exclusively” standpoint. However, exclusive business use of part of a home can have other consequences depending on your local tax rules and property circumstances, particularly around reliefs that may apply to a main residence. Even if you are renting rather than owning, exclusive use can raise practical questions such as whether your tenancy allows business use or whether you need landlord consent.

From a purely expense perspective, if a room is used exclusively for business, your apportionment becomes simpler because you may not need to apply a time reduction. But be realistic: if your “office” is also a guest room, storage area for personal items, or occasionally used for family activities, it isn’t exclusive. Many people can claim a portion even without exclusivity, but the calculation needs to reflect mixed use.

Tenancy agreements and landlord permission: don’t ignore the paperwork

Before claiming rent as a business expense for home working, check your tenancy agreement. Many residential tenancy contracts contain clauses restricting business use, especially anything that could be considered running a business from the premises. In reality, “working from home” often includes administrative work that is unlikely to disturb neighbors or change the nature of the property. But if you have clients visiting, store large quantities of stock, or use equipment that could increase wear and tear, your landlord may object or the tenancy may require permission.

From a tax perspective, the existence of a restrictive clause doesn’t automatically determine deductibility, but from a practical and legal perspective it matters a lot. It can also affect insurance and your relationship with the landlord. If your business use is significant, it is sensible to obtain written permission, and to ensure any required insurance is in place.

What if you rent a property solely to run the business (but not as your home)?

Some sole traders rent a separate property purely for business activities, such as a studio apartment used only for photography shoots, a small unit used as a craft workshop, or a room in a commercial building used for consultations. If the property is genuinely used solely for business, the rent is usually fully deductible, subject to the normal rules about being incurred for business purposes.

Be careful, though, if the rented property is a residential property and you occasionally stay there overnight or use it as a personal getaway. Even occasional private use can complicate the claim and may require apportionment. The more it resembles personal accommodation, the more likely it is that the expense could be challenged or restricted.

Serviced offices, coworking spaces, and hot desks: how rent-like payments are treated

Not all “rent” is called rent. Many sole traders pay for workspace through serviced offices, coworking memberships, or hot desk subscriptions. These payments often bundle different items together: use of a desk or office, internet, utilities, reception services, meeting rooms, and sometimes refreshments.

In most cases, the payment is still a business expense if you use the space for business. Because the service is provided for business purposes and doesn’t usually involve private use, it is commonly deductible in full. The main difference is administrative: you may be paying a monthly membership fee rather than a formal rent under a lease, and you might receive invoices that describe the service differently.

Record keeping is important here. Keep invoices and receipts, and note what the fee covers. If meeting rooms are charged separately, those charges are typically deductible as well, provided they are for business meetings. If you bring along personal guests for social use of the facilities, you should not include that portion as a business expense.

Renting a room in someone else’s property: sublets, licenses, and informal arrangements

Sole traders sometimes rent a room in another business’s premises, or in a private property, for example a therapist renting a room in a salon, or a tutor renting a room in a community building. The legal structure might be a sublease, a license to occupy, or a more informal arrangement. From a tax perspective, what matters most is whether the payment is for business use.

If you pay a set amount for use of the room for your business services, this is typically deductible. If the payment includes extras like shared utilities, cleaning, or receptionist support, it is still usually deductible as a business expense. The key is to ensure the payment is genuinely connected to your business activities and that you have evidence of the arrangement—preferably written terms and regular receipts or bank transfers that match an agreed amount.

If you pay in cash, it becomes harder to evidence, so you should request receipts. Bank transfers with clear references can also help demonstrate the business purpose of the payment.

Mixed-use rented premises: when you need to split the claim

Some sole traders rent premises that are used both for business and personal purposes. Common examples include:

• A rented property where you operate a small shop on the ground floor but live upstairs.

• A rented unit that doubles as a workshop and occasionally as personal storage.

• A rented studio where you sometimes host personal gatherings.

In these cases, it is rarely correct to claim the full rent. Instead, you apportion the rent so only the business portion is claimed. The method should reflect actual use. If the premises have clearly separated areas (for example, a business area and a living area), you can apportion by floor area or by rooms. If the separation is less clear, you might need a more nuanced approach.

The main goal is to avoid claiming personal living costs as business expenses. If your personal use is substantial, a larger portion of the rent should remain non-deductible. If personal use is truly incidental, you may still claim most of the rent, but you should be prepared to explain why the private element is minimal.

Rent paid to a spouse, partner, or family member: extra scrutiny and best practice

Sometimes a sole trader pays rent to a spouse, partner, or family member for use of a room or space. This can be legitimate, but it tends to attract scrutiny because it may be seen as a way of shifting income within a household. If you do this, treat it like a real business arrangement:

• Have a written agreement setting out the amount, what is provided, and the payment terms.

• Ensure the rent is at a reasonable market rate for the space and facilities.

• Pay it regularly through a traceable method such as bank transfer.

• Keep evidence of business use (for example, a floor plan, photos of the setup, or a log of hours worked in the space).

Also remember that the recipient of the rent may need to declare it as income. While that’s a separate issue from your business expenses, it’s part of why these arrangements are examined more closely. If the payments are not genuinely rent-like or are significantly above market value, the deductible amount may be challenged.

What about rent deposits, advance rent, and one-off payments?

Rent isn’t always a simple monthly payment. You might pay a deposit, rent in advance, or a one-off premium to secure a lease. The tax treatment can vary depending on the nature of the payment.

Deposits

A refundable deposit is typically not an expense at the time you pay it, because you expect to get it back (assuming you meet the terms of the tenancy). If part of the deposit is later retained to cover damage or unpaid rent, that retained portion may be treated as an expense at that point, depending on what it covers and whether it relates to business use.

Advance rent

If you pay rent in advance, the key question is what period it covers. Often, the cost should be matched to the period of use rather than all being claimed immediately. In everyday bookkeeping for small businesses, you may record the payment when made, but your accounts should reflect the correct period for the expense, especially if the amounts are significant and span accounting periods.

Lease premiums and one-off payments

Sometimes you pay a lump sum to secure the right to occupy premises, separate from regular rent. These payments can have different treatment compared to ordinary rent, and may be treated more like a capital cost in some contexts. If you face a situation like this, it is worth getting tailored advice, because the correct approach depends on the specifics of the arrangement and local rules.

Rent versus other property-related costs: what else can you claim?

Rent is only one part of the cost of occupying premises. Sole traders often also incur:

• Utilities such as electricity, gas, and water.

• Internet and phone services.

• Business rates or local taxes (where applicable to business premises).

• Service charges, maintenance charges, and common area fees.

• Repairs and maintenance (where you are responsible under the lease).

• Cleaning and waste disposal services.

• Security or alarm monitoring.

In many cases, these are deductible when they relate to business premises. For home working, these costs are usually apportioned in the same way as rent (space and time, or a simplified method). For commercial premises, they are often fully deductible if the premises are used wholly for business.

Be aware of the distinction between repairs and improvements. Routine repairs that keep premises in working order are typically treated as revenue expenses. Improvements that create something new or significantly upgrade the property may be treated differently. If you are renting, large improvements might also involve agreements with the landlord, and you should keep detailed invoices.

Record keeping: what you should keep to support a rent claim

Good records reduce stress and help you claim confidently. For rent claims, keep:

• A copy of your lease, tenancy agreement, license agreement, or coworking contract.

• Rent invoices or statements, if provided.

• Bank statements showing payments leaving your account.

• A simple calculation of how you apportioned rent for home use (rooms, floor area, time, and the resulting percentage).

• Evidence that the space is used for business (photos of a home office setup, a floor plan, a work schedule, diary entries, or client appointment records).

• For mixed-use premises, notes explaining how you divided personal and business use.

You do not need to overcomplicate it, but you should be able to explain your method in a few sentences and show where the numbers came from. If you change how you use the space during the year—perhaps you stop using a room as an office or start working more hours from home—update your calculation accordingly.

Common mistakes sole traders make when claiming rent

Claiming all home rent because you “work from home”

This is one of the most common errors. If your home is also where you live, the rent is partly personal. Unless you can demonstrate that the property is used wholly for business with no private use (rare for a main residence), a full claim is usually not appropriate.

Using an unrealistic apportionment

Claiming 50% of rent because you “use a room” might not be defensible if the room is used only a few hours per week. A reasonable method based on space and time is more robust.

Forgetting to adjust for changes

If you moved house, changed your working pattern, or started using a different room, your claim should reflect that. Keeping the same estimate year after year without checking it can lead to inaccurate returns.

Not keeping evidence

A rent claim is much easier to defend when you have a clear written basis. Even a simple spreadsheet with your calculation and a copy of your tenancy agreement can make a big difference.

Including private elements of mixed-use premises

If your rented premises are partly your home and partly your business, failing to split the rent can lead to overclaiming. A clear apportionment is essential.

Practical examples of rent claims for sole traders

Example 1: fully rented business unit

A sole trader hairdresser rents a small salon unit for £900 per month. The salon is used solely for clients and business operations. The rent is usually fully deductible as a business expense. Additional costs like utilities and cleaning are also likely deductible, assuming they relate to the salon.

Example 2: home working with a dedicated office (but not exclusive)

A freelance graphic designer rents a two-bedroom flat for £1,400 per month. One bedroom is set up as an office but is occasionally used for guests. The flat has four usable rooms (two bedrooms, living room, kitchen/dining combined). They use the office around 35 hours per week. A reasonable approach might start with 1/4 of the rent and then apply a time factor to reflect business hours. Because it is not exclusive, a time adjustment makes the claim more defensible.

Example 3: mixed-use shop and living accommodation

A sole trader rents a property where the ground floor is a small shop and the first floor is their living space. The total rent is £2,000 per month. They apportion the rent by floor area: 55% shop, 45% living accommodation. They claim 55% (£1,100) as a business expense. They also apportion utilities if they cover the whole property, using a similar basis.

Example 4: coworking membership

A consultant pays £250 per month for a coworking membership that includes desk space, internet, and access to meeting rooms (with some meeting room hours included). The fee is used solely for business, so it is generally deductible in full. Any extra meeting room fees paid for business meetings are also typically deductible.

How to decide between simplified expenses and actual rent apportionment

If you have the option of using a simplified method for home working expenses, it can reduce admin and the risk of making an arithmetic mistake. However, it may not reflect the true costs if your rent is high or you use a large portion of your home for business. The actual cost method may provide a larger claim, but it requires more careful calculations and record keeping.

A practical way to decide is to calculate both (even informally) and compare. If the difference is small, you might prefer the simplified method for ease. If the difference is significant and you can justify your actual cost apportionment, the actual cost method may be worth the effort.

Whichever method you choose, consistency matters. Switching methods frequently without good reason can create confusion. If your circumstances change significantly—such as moving to a new home or renting a separate office—reassessing your approach is sensible.

When rent might not be allowable, or might be restricted

Even if you pay “rent,” it won’t always qualify as a business expense. Situations where the claim may be disallowed or restricted include:

• The rent is primarily for personal living and business use is minimal or incidental.

• The payment is not genuinely rent (for example, an informal payment with no clear business purpose or evidence).

• The rent includes an element that is clearly personal, such as luxury accommodation chosen mainly for personal reasons, with only a small amount of business activity occurring there.

• The expense is connected to non-business activities, such as renting a venue for personal events and trying to re-label it as business promotion without a clear business purpose.

• The rent is inflated above market rates in arrangements with family members, where the excess cannot be justified as a business cost.

In borderline cases, the best protection is to keep the arrangement as “normal” as possible: market rates, written agreements, clear evidence of business use, and sensible apportionment for any private benefit.

Tips for making your rent claim robust

Be conservative where private use exists

If you’re unsure, err on the side of claiming a smaller proportion that you can comfortably justify. Overclaiming can create stress later.

Use a simple, logical method

Rooms and time is easy to explain. Floor area can be more accurate when room sizes vary. Choose one and stick with it unless your facts change.

Document your assumptions

A short note explaining your working hours and which room you use can be enough. Save it with your accounts.

Separate business and personal where possible

Having a clear workspace, separate storage for business stock, and dedicated business equipment helps demonstrate genuine business use.

Keep the paper trail

Keep contracts, invoices, and bank statements. If your rent is paid as part of a larger bundle (for example, all-inclusive serviced offices), keep the invoice that describes the service.

Conclusion: yes, but only the business part, and the details matter

So, can a sole trader claim rent as a business expense? In many cases, yes—especially where the rent is paid for premises used wholly for business, such as an office, studio, workshop, or shop. If you work from home and rent your residence, you can often claim a proportion of your rent, but typically only the part that relates to business use, worked out on a reasonable basis such as space and time. For mixed-use properties, apportionment is essential, and the more personal benefit involved, the more conservative and well-evidenced your claim should be.

The best approach is to match your claim to reality: what space you use, how you use it, and how much of the cost is truly for your trade. If you keep clear records and apply a sensible method, rent can be a legitimate and valuable expense that reduces your taxable profits without pushing you into risky territory.