HMRC targets ‘personal expenditure’ in tax crackdown on UK households | Personal Finance | Finance

The tax office is set to launch a digital campaign to ensure that self-assessment taxpayers do not claim tax relief on personal expenditures.

The campaign follows a trial launched last year, which generated more than £27million in tax revenue and highlighted several reporting inaccuracies. According to a document seen by the Chartered Accountants in England and Wales (ICAEW), the trial exposed cases of reporting “disallowable private use in business expenditure.” Subsequently, HM Revenue and Customs (HMRC) said that it will conduct more inquiries to ensure that sole traders, partners, and landlords only claim deductions for business-related expenses.

According to the ICAEW, tax agents have been encouraged to review claims when they prepare clients’ 2024/25 tax returns and make appropriate corrections to any earlier returns.

Legislation states that in order for an expense to be deductible, it must be “incurred wholly and exclusively for the purposes of the trade”.

If HMRC identifies a non-trade purpose, the expenditure will not be allowable.

This remains the case even if there is also one or more business reasons for making the expenditure. “Dual-purpose” expenditure is expenditure that is incurred for more than one reason. If one of the reasons is not for business purposes, the expenditure will fail the statutory test, and there will be no provision that allows a ‘business’ proportion.

However, there are exceptions when an “incidental benefit” arises.

For example, a self-employed consulting engineer may travel to an exotic location to advise on a project. The travel and the exotic location may be benefits, but where there was no private purpose, they are “incidental” to the carrying on of the profession. This means the cost is allowable.

HMRC’s detailed guidance on the “wholly and exclusively” test can be found in the BIM37000 legislation.

An HMRC spokesperson told Express.co.uk: “We take a variety of approaches to ensure all taxpayers are aware of their tax obligations and pay what they owe at the right time.”

When asked about the upcoming campaign, HMRC said it regularly carries out activities to educate, remind, or prompt customers to review their tax affairs to reduce the likelihood of errors.

HMRC has published guidance to help self-employed customers with their expenses. It can be found here.