HMRC has shared a document with ICAEW which explains that the digital campaign follows a trial in 2024. This trial generated over £27 million in tax revenue and “highlighted reporting of disallowable private use in business expenditure,” HMRC says that it will be opening more enquiries to check that sole traders, partners and landlords only claim deductions for business-related expenses. This includes ensuring that mixed use expenses are apportioned correctly between business and personal use, which takes into account the circumstance of the particular tax year.  

Agents are encouraged to review claims when they prepare a client’s 2024/25 tax return and make the appropriate corrections to any earlier returns where the claims may not be correct. 

Rules generally applying 

The legislation states that in order for an expense to be deductible, it must be “incurred wholly and exclusively for the purposes of the trade”. HMRC’s detailed guidance on the wholly and exclusively test starts at BIM37000.  

Where an identifiable part of an expense is incurred for trade purposes, that part of the expense is an allowable deduction (BIM37600). It is important that the method of apportionment used is: 

• supported by records (eg, mileage records); and 
• applied consistently from one tax year to the next. 

It must also be the case that the expense is not capital in nature (BIM35002). Capital allowances are available for qualifying expenditure on plant and machinery. However, an adjustment is required where there is personal use (CA27005), which will typically be for a vehicle. Repairs to premises are deductible, but if the work amounts to an improvement, the costs will be capital in nature and should be disallowed (BIM46901). 

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 (BIM75000). 

Particular expenses 

If a taxpayer chooses to use calculate their taxable profits using their actual expenses, there are certain categories of expenses that are more likely to need private use adjustments. A brief summary of the rules is provided below, alongside links to detailed guidance from HMRC.