Self-employed workers are being increasingly squeezed by tax allowances that have failed to keep pace with rising living and fuel costs. 

Frozen tax allowances leave many absorbing business expenses personally or facing complex administrative hurdles to claim relief.

Many self-employed taxpayers rely on simplified expenses to claim tax relief on the costs of working from home or using their own vehicles for business. These flat rate allowances were designed to ease administration by avoiding the need to calculate and evidence actual additional expenditure on household costs such as heating, lighting, council tax and rent, or motoring costs including fuel, insurance and repairs. However, with energy and motoring costs far higher than when these rates were introduced, the allowances now bear little relation to reality.

Allowances for business use of home highlight the problem. The simplified homeworking rates, which range from £10 to £26 per month depending on hours worked, have remained unchanged since their introduction in 2013. Over the same period, household energy bills have risen sharply. Research published in June 2025 found typical domestic energy bills were 43% higher than in winter 2021/22. As energy is a major element of homeworking costs, current flat rates significantly understate the true expense of running a business from home.

The failure to uprate flat rate allowances leaves many self-employed people either underclaiming relief or reverting to complex calculations of actual costs, undermining the original aim of simplified expenses.

References - Domestic energy prices - House of Commons Library