Date posted: 4th Sep 2025
It is understood that after a successful campaign that raised over £27m in tax, HMRC will begin to widen their efforts to ensure that sole traders and partnerships are not claiming personal expenditure on their tax return and receiving tax relief for private costs.
The legislation states that a deduction for expenditure is allowed where costs are incurred wholly and exclusively for the purposes of the trade.
Where an identifiable part of an expense is incurred for trade purposes, that part of the expense can be claimed as an allowable cost. Such an apportionment should be supported by evidence or records and the method of apportionment should follow a consistent review each year.
HMRC could be looking at:
• Costs which are not allowable at all such as personal travel, repairs, meals and entertaining.
• Costs which are mixed use are apportioned correctly between private and business expenditure. This would be costs such as use of cars, telephones, computers etc.
• Capital expenditure being claimed as an expense, particularly in relation to rental properties.
• Claims for interest relief where the interest paid has not being incurred entirely for business purposes such as when a property is remortgaged and funds are withdrawn personally, although this is a particularly complex area!
As ever, if you need our help, please give us a call.
