HMRC Digital Tax Compliance is at the centre of a new campaign for the 2024/25 Self Assessment season, aiming to reduce incorrect expense claims and improve reporting accuracy.
Key Points at a Glance:
- HMRC is stepping up checks to stop taxpayers claiming personal expenditure as business expenses.
- A digital campaign is running for 2024/25 returns after a successful trial raised £27m in extra tax.
- Sole traders, partners, and landlords are most affected; mixed-use costs must be apportioned properly.
- Clients are advised to review current and past claims to ensure accuracy.
- Only expenses “wholly and exclusively” for business qualify for tax relief.
What’s Changing?
As part of its HMRC Digital Tax Compliance initiative, HMRC has announced a new digital campaign for the 2024/25 Self Assessment filing season. The aim is to remind taxpayers that personal or private expenditure cannot be claimed as a business deduction.
This follows a 2024 trial that generated over £27 million in additional tax revenue. The trial revealed that some taxpayers were incorrectly including personal elements of their spending in business expenses.
As a result, HMRC has confirmed it will open more enquiries into returns where expenses appear overstated or not properly adjusted for personal use.
Who Is Affected?
- Sole traders
- Members of partnerships
- Landlords
These groups often incur expenses with both business and personal elements (e.g. vehicles, phones, utilities). HMRC will be looking closely at how these costs are reported.
The Rules on Allowable Expenses
The core rule is simple: an expense must be “incurred wholly and exclusively for the purposes of the trade”.
If part of an expense is clearly for business use, that proportion is deductible. The apportionment must be reasonable, evidence-based and consistent year on year (e.g. mileage logs, phone bills).
Costs that are capital in nature (improvements, new assets) are not deductible as expenses, though capital allowances may apply.
Examples HMRC Will Focus On
Motor Expenses:
- Fuel, insurance, repairs – only the business use proportion is deductible. Personal use must be excluded.
Premises Repairs:
- Routine maintenance is deductible, but improvements (e.g. extensions) are capital costs.
Use of Home for Business:
- Either actual costs apportioned fairly or HMRC’s flat-rate “simplified expenses” can be used.
Plant and Machinery:
- Capital allowances available, but reduced where there is personal use.
Taxpayers have the option to use flat rate “simplified expenses” to work out allowable expenses on motor costs, use of home and private use of business premises.
What This Means for You
If you are a sole trader, partner or landlord:
- Review your expenses carefully when preparing your 2024/25 return.
- Keep clear records of how business and personal use is divided.
- Consider whether simplified expenses might be more suitable.
If HMRC identifies errors, they may open enquiries and request corrections to earlier returns. This can lead to additional tax, interest and penalties.
Our team can review your expense claims, check that apportionments are reasonable, and ensure they are presented in line with HMRC guidance.
If you would like support with preparing your 2024/25 Self Assessment return, or need to revisit earlier years to correct expense claims, we can guide you through the process with clarity and confidence. Get in touch today.