HMRC to Focus on Small Business Expense Claims
Are you a small business owner?
There’s a new HMRC initiative you should be aware of. According to the Chartered Institute of Taxation (CIOT), HMRC is putting a sharper focus on private use adjustments. This is often overlooked in business expense reporting. It’s part of HMRC’s wider effort to close the small business tax gap. Importantly, it could impact how you file your self-assessment tax return.
What are private use adjustments?
This is when there is private use of an asset by an owner, sole trader or partner in a partnership. It’s important to reduce business expenses to reflect the proportion of private/personal use. It means only business usage appears in the accounts and tax return.
HMRC’s campaign: what to expect
In the coming months, HMRC is launching a digital campaign to raise awareness around the proper reporting of private use (PU) adjustments when claiming business expenses. Examples of business assets that may involve personal use include vehicles and phones.
HMRC wants to ensure business expense claims accurately reflect any private or personal use and, ultimately, encourage correct claims on self-assessment tax returns.
Pilot campaign results
In 2024, HMRC ran a campaign trial involving about 600,000 self-assessment taxpayers. The trial generated over £27 million in additional tax revenue, revealing ‘widespread issues in reporting disallowable private use within business expenditure’.
While the total figure seems substantial, the average amount of extra tax per individual was just £45. This suggests that, for many taxpayers, the reporting errors were relatively minor (around £100 per person), even assuming all the underpaid tax was charged at the highest rate.
Deploying AI
Given the relatively small sums involved for individual taxpayers but the sheer scale of the operation, HMRC may be looking to technology for help. This could be an ideal area for their AI systems to step in, analysing patterns and highlighting discrepancies in PU adjustments across thousands of returns.
What does this mean for small businesses?
‘Staying informed and proactive is key,’ says Karen Bunyan, Partner at Hargreaves Owen Chartered Certified Accountants in Halls Green, north Herts. ‘By making sure your expense claims are accurate and reflect any private use, you’ll not only keep your business compliant but also avoid unexpected tax bills later on.’
Will this campaign impact you?
Talk to the friendly tax experts at Hargreaves Owen. Let’s ensure private use adjustments are a routine part of your year-end tax review.