Ofgem said on 26 August 2026 that the energy price cap will rise to £1,723 a year for a typical dual-fuel household paying by direct debit from 1 October to 31 December, up from £1,663. That is £60 a year, about £5 a month, or 4%. For a sole trader working from a spare room, a tenth of that rise, which is what a common room-and-hours calculation produces, is about 50p a month.

The number that should concern home workers is a different one. HMRC’s flat rate for working from home expenses pays a maximum of £26 a month, or £312 a year, however large the bills are. The actual-cost method, which claims a proportion of the real heating, electricity, council tax, rent or mortgage interest and broadband, usually produces a bigger figure once anyone does the arithmetic. Most sole traders never do. The October cap is a prompt to look at the gap, not the cause of it.

What does the October price cap actually cost a home worker?

Price cap period	Typical dual-fuel bill (direct debit)	Change
1 July to 30 September 2026	£1,663 a year
1 October to 31 December 2026	£1,723 a year	Up £60 a year, about £5 a month, 4%
2022 crisis peak (Ofgem)	About £2,500 a year	October 2026 cap is 52% below this

The rise is not spread evenly. Ofgem’s figures show gas costs rising by about 8%, while electricity is broadly stable because VAT has been removed from electricity bills, a change Ofgem says stops bills being roughly £45 a year higher. A household without gas sees a rise of less than 1%. Wholesale gas prices rose 11% over three months.

Around 22 million households are on default tariffs and feel the cap directly; around 11 million (35%) are on fixed tariffs and are unaffected. With fixed deals available well below the cap, the tariff decision moves a home worker’s bill by more than the cap rise does.

How does the flat rate for working from home expenses work?

GOV.UK’s simplified expenses guidance sets out three bands, available only to a sole trader who works 25 hours or more a month from home. Between 25 and 50 hours the rate is £10 a month. Between 51 and 100 hours it is £18 a month. At 101 hours or more it is £26 a month, and it stops there: someone working 120 hours a month and someone working 200 claim the same £312 a year.

The flat rate has one carve-out that is often missed. It does not include telephone or internet costs, which are claimed separately as the business proportion of the actual bill, even by people on the flat rate. A sole trader who takes the £26 and stops has left the broadband claim on the table.

What the flat rate buys is simplicity, and for someone working 30 hours a month in a small flat it may well be the better answer. The problem is that it is usually chosen by default.

What does the actual-cost method capture that the flat rate misses?

The alternative is to claim the business proportion of actual running costs, worked out from the rooms used for business and the hours they are used. GOV.UK lists heating, electricity, council tax, mortgage interest or rent, internet and phone as in scope, and HMRC’s simplified expenses checker compares the two methods.

An illustration, not a statistic, shows where the difference comes from. Take a sole trader working 120 hours a month in a five-room house, using one room for business about half the time. On the flat rate the claim is £26 x 12 = £312. On the actual-cost method, the energy line alone is £1,723 x 1/5 x 1/2 = roughly £172 at the October cap. That is short of the flat rate on its own, which is why people stop there.

The method does not stop at energy. The same one-in-ten share applies to council tax, to rent or the interest element of a mortgage, and to broadband. To match the flat rate, those other costs only need to add another £140 of claim, which at a tenth means combined annual bills of £1,400. Anyone who knows their own council tax bill can see how quickly that is passed once rent or mortgage interest is added, and with Bank Rate at 3.75%, mortgage interest is a substantial line for recent buyers.

Method	Flat rate	Actual-cost
Heating and electricity	Included in the flat rate	Business proportion of the real bill
Council tax	Not claimable on top	Business proportion
Rent or mortgage interest	Not claimable on top	Business proportion
Phone and broadband	Business proportion, claimed separately	Business proportion
Maximum a year	£312 (at £26 a month)	No fixed ceiling, depends on bills and proportion
Records needed	Hours worked	Hours, rooms and the bills themselves

The cost is record-keeping: a note of hours and a folder of bills, so the proportion can be defended. It is the same discipline that lets a sole trader work out what an overdue invoice is actually worth in statutory interest; neither claim is available without the paperwork.

Why can a bigger expenses claim shrink a mortgage?

Here is the counterweight. Every pound of working from home expenses claimed reduces taxable profit by a pound. For tax, that is the point. For a mortgage application it cuts the other way, because lenders assess a sole trader on the profit shown in their SA302 tax calculations, not on turnover.

As an illustration, a sole trader who moves from the £312 flat rate to an actual-cost claim of £2,000 has lowered the income a lender will count by roughly £1,700 a year. Multiplied by a lender’s income multiple, that is several thousand pounds off the maximum loan. It is the mechanism set out in the piece on why good accounting shrinks the mortgage a lender will offer.

This does not make the flat rate correct. It means the choice of method is not purely a tax question. A sole trader two years out from a mortgage application might reasonably take the smaller claim and accept the higher tax bill as the price of a bigger loan. One with no borrowing plans has no such reason.

Frequently asked questions

Can a sole trader switch between the flat rate and actual costs?
GOV.UK presents the two as alternatives and provides a checker to compare them. Records for an actual-cost claim have to exist for the year claimed, so the comparison belongs during the year, not after it.

Does the October price cap change the flat rate?
No. The bands of £10, £18 and £26 a month are fixed by HMRC and do not move with energy prices. Only the actual-cost method picks up the £60 a year rise, and then only the business share of it.

Is broadband included in the £26 a month?
No. GOV.UK states that the flat rate excludes telephone and internet. The business proportion of those bills is claimed separately under either method.

Does a fixed tariff affect the claim?
Only through the size of the bill. Ofgem’s Neil Kenward said on 26 August that fixed tariffs were available at “£100 or more below the October price cap”. A smaller bill means a smaller energy claim and a smaller household cost.

The October cap is a 4% story, and for a home worker the business share of the rise is measured in pence. The expenses decision underneath it is measured in hundreds of pounds a year, in both directions. A sole trader who compares the two methods once, with real bills and real hours, will know which way their own number falls.