If you’re a sole trader, partner, or landlord preparing your 2024/25 tax return, you should be aware that HMRC is launching a digital campaign specifically targeting tax relief claimed on personal expenditure that has been incorrectly included as business expenditure in your personal tax return.
This isn’t just a gentle reminder – it’s a serious compliance initiative that’s already proven highly effective, with their 2024 trial alone generating over £27 million in additional tax revenue!
Why HMRC is cracking down on personal expenditure claims
If you look at the additional revenue generated, you can see why HMRC are focusing on this. As mentioned, HMRC’s trial run in 2024 generated over £27 million in additional tax revenue by identifying taxpayers who had claimed tax relief on personal expenses as business deductions.
I think you’ll agree that’s a substantial amount, and it’s highlighted just how much of an issue this has become.
HMRC has found significant problems with “disallowable private use in business expenditure”. Put simply, people are claiming tax relief on expenses that were partly or wholly for personal use.
As a result, HMRC are now planning to open more enquiries and run targeted campaigns to ensure compliance.
Business expense rules: The “wholly and exclusively” test explained
At the heart of this issue is a fundamental tax principle that many taxpayers misunderstand. For an expense to be tax-deductible and claimed against your profits, it must be incurred “wholly and exclusively for the purposes of the trade.” This might sound straightforward, but in practice, it can be quite tricky.
The good news is that if you can identify a specific part of an expense that genuinely relates to your business, that portion can still be claimed. The key is getting the apportionment right and being able to support it with proper records.
Common business expense mistakes: What HMRC is targeting
Certain types of expenses consistently trip people up, and this is where HMRC are looking to focus. Here are the main problem areas I often see for sole traders and self-employed individuals:
Travel expenses and meals
Unfortunately, your daily lunch isn’t a business expense, even if you’re self-employed.
Similarly, travelling from home to your regular place of work generally isn’t deductible.
However, meals and accommodation can be claimed if you’re in an itinerant trade or travelling outside your normal pattern of work.
Vehicle expenses and business mileage
This is a big one for HMRC compliance checks.
If you use your car for both business and personal trips, you can’t claim 100% of the running costs. You need to work out the business proportion and only claim that amount.
I recommend keeping a detailed mileage record, which you’d need for any HMRC enquiry.
Home office expenses
With more people working from home, this has become increasingly relevant. You can claim a proportion of your household costs, but it should be based on genuine business use – typically calculated by the proportion of rooms or floor area used exclusively for work.
Training and professional development
Here’s where it gets interesting. Refresher courses and Continuing Professional Development (CPD) to maintain existing skills are generally deductible, but training that gives you new knowledge, skills, or qualifications typically isn’t.
Entertainment expenses
As a general rule, entertaining clients, customers or suppliers isn’t tax-deductible, despite what many people assume!
How to calculate business expense apportionment correctly
If you have mixed-use expenses, the method you use to split them between business and personal use needs to be:
- Supported by proper records (mileage logs, time sheets, receipts)
- Applied consistently year after year
- Reasonable and justifiable for HMRC compliance
Don’t just pluck a percentage out of thin air!
HMRC will want to see the working behind your figures, especially if they decide to enquire into your return. This is particularly important for vehicle expenses, home office costs, and utility bills.
HMRC simplified expenses: A safer option?
If all this sounds too complicated, you might want to consider using HMRC’s simplified expenses system for your 2024/25 tax return.
This allows you to use flat rates for motor costs, use of home, and private use of business premises. It might not always give you the biggest deduction, but it’s certainly less prone to error and HMRC enquiry.
The simplified expenses rates include:
Business mileage: 45p per mile for the first 10,000 miles, then 25p per mile, per tax year
Working from home: £6 per week if working from home regularly
Living at your business premises: £350 per month for each person living there
Action steps: How to avoid HMRC personal expenditure enquiries
1. Review your 2024/25 tax return claims
Take a careful look at what you’re planning to claim on your 2024/25 return.
Are all the expenses genuinely and wholly for business purposes?
If not, make sure you’re only claiming the business portion.
2. Check previous tax years
If you think you might have overclaimed in earlier years, it’s worth reviewing those returns too. HMRC is encouraging voluntary corrections through disclosure facilities, which is usually better than waiting for them to find the errors themselves.
3. Improve your record keeping
Going forward, make sure you can support any apportionments with solid records. A few minutes spent logging business mileage or calculating the business use of your home office could save you significant hassle during an HMRC compliance check.
4. Consider professional tax advice
If you’re unsure about any business expense claims, it might be worth speaking to one of our accountants or tax advisers. They can help you get your claims right and avoid potential HMRC enquiries down the line.
Summary: HMRC personal expenditure compliance in 2025
The days of hoping your expense claims won’t be scrutinised are over, but this shouldn’t be cause for panic – it’s simply about making sure you’re claiming what you’re genuinely entitled to, and no more!
Key points to remember:
- Only claim expenses that are wholly and exclusively for business
- Keep detailed records to support any apportionment
- Consider simplified expenses for easier compliance
- Review and correct previous years’ returns if needed
- Seek professional advice if you’re unsure
We recommend you get your records in order, understand the business expense rules, and when in doubt, err on the side of caution. It’s far better to be conservative with your claims than to face an HMRC enquiry later on.
The tax system works on the principle that we all pay our fair share. By ensuring your expense claims are accurate and properly supported, you’re not only avoiding potential problems with HMRC – you’re also doing your bit to maintain the integrity of the system that we all rely on.
Need help with your business expense claims or worried about HMRC compliance?
Contact our qualified tax advisers to ensure your 2024/25 tax return is accurate and compliant with the latest HMRC requirements.
