HMRC have stated that they will be opening more inquiries to check that sole traders, partners and landlords only claim deductions for business related expenses. They hope to encourage people to think twice before including costs that might not be acceptable with their new ‘claiming work expenses’ campaign.
The government’s tax division began a pilot last year, which generated over £26 million in tax revenue and highlighted reporting of disallowable private use in business expenditure. Now, they are set to open more enquiries to verify that sole traders, partners, and landlords only claim deductions for business-related expenses.
HMRC have announced they are cracking down on ‘personal expenditure’, issuing a warning to millions of UK taxpayers. The tax authority will launch a digital campaign to ensure that self-assessment taxpayers do not claim tax relief for personal expenditure when completing their 2025/26 tax returns.
At Elevate Accountancy we will always review claims when preparing your tax returns and highlight any concerns regarding personal expenses. For example, regular travel to the same office or co-working space is considered commuting and is therefore not claimable as a work expense despite clients naturally thinking that it should be.
If you are in doubt, please check with us if you need to and there is also more specific information online within the HMRC website. The statute says initially that expenditure cannot be deducted in calculating trading profits unless it is incurred wholly and exclusively for the purposes of your trade, profession or vocation.
For many expenses it will be obvious whether they are business related or personal expenses, however when applying the ‘wholly and exclusively’ test, it’s important to realise that there will be some expenses that have benefits both professionally and personally.
If you, as a taxpayer, incur such an expense for your trade, profession or vocation, what’s known as an incidental benefit can arise.
However, such an incidental benefit does not automatically mean you have to discount the expenditure.
So, for example, if a professional wishes to travel to a conference abroad that has specific relevance to the work that they do. The travel and the location may be a benefit, but if there was no private purpose, they are incidental to the profession, and the cost can be allowable.
The rules state, expenses must be “incurred wholly and exclusively for the purposes of the trade”, for the expense to be deductible.
If an identifiable part of an expense is incurred for trade purposes, that part of the expense is still an allowable deduction. Different rules apply when the expense is capital in nature.
Agents such as ourselves are encouraged to make sure that we are using the correct guidelines with expenses now in anticipation of the crackdown next year.