UK taxpayers are being warned not to claim personal costs as business expenses, as HM Revenue & Customs (HMRC) ramps up scrutiny. A digital campaign will target income tax self-assessment (ITSA) filers for the 2025/26 tax year, aiming to prevent ineligible claims.
The campaign follows a trial run last year that, according to HMRC, brought in more than £27 million in additional revenue. The initiative is aimed particularly at sole traders, business partners and landlords, and will include an increase in compliance checks.
Campaign to Target ‘Disallowable’ Private Use Claims
HMRC’s move builds on a 2024 pilot scheme that identified widespread instances of what it calls “disallowable private use in business expenditure.” According to the department, many taxpayers mistakenly, or in some cases deliberately, claim deductions for expenses that are partly or wholly personal in nature.
The legislative basis for this crackdown lies in section 34 of the Income Tax (Trading and Other Income) Act 2005 for unincorporated businesses and section 54 of the Corporation Tax Act 2009 for companies. Both state that costs can only be deducted if they are incurred “wholly and exclusively” for the purposes of the trade, profession or vocation.
Personal tax specialists have been advising accountants and tax agents to carefully review clients’ expense claims when preparing 2024/25 tax returns. Where inappropriate claims have been made in earlier returns, HMRC is encouraging corrections. This is expected to help reduce the risk of formal enquiries, which the agency says it will be opening in greater numbers.
Guidance on Allowable Expenses
HMRC’s internal guidance, known as BIM37000, explains how the “wholly and exclusively” rule should be applied. It cautions that incidental private benefits do not automatically make a business expense disallowable. For example, a self-employed engineer travelling overseas to advise on projects may gain personal enjoyment from visiting certain locations, but if there was no private purpose, the cost can still be claimed.
Where part of an expense is clearly for business and part is personal, only the business portion is deductible. The expense must also not be capital in nature, meaning it cannot be for the acquisition of assets or long-term improvements.
Tax experts say this distinction is key to avoiding disputes with HMRC. As the agency increases compliance activity, taxpayers are being urged to keep thorough records, clearly separate business and personal costs, and seek advice when in doubt.
