HMRC Increases Checks on Personal Expenses Claims in Self-Assessment

HM Revenue & Customs (HMRC) has increased its scrutiny of personal expense claims made as business costs in tax returns. This move is part of a wider campaign to close the UK’s tax gap, improve compliance, and recover unpaid tax from incorrect claims. Many self-employed individuals, landlords, and small business owners are now facing more detailed checks on what they class as allowable expenses. At Apex Accountants, we are helping clients across the UK understand how HMRC reviews personal expenses and how to keep their tax affairs compliant, accurate, and stress-free.

Why HMRC is targeting personal expenditure

HMRC has found that a large number of taxpayers mistakenly or deliberately claim private spending as business costs. In its 2024 pilot campaign, HMRC recovered around £27 million in unpaid tax by identifying wrongly claimed personal expenses. Following this success, the department has now launched a full-scale digital campaign focused on personal expenditure on self-assessment returns that show unusually high or inconsistent expense claims.

This new approach uses HMRC’s Connect big data system, which cross-checks bank records, digital invoices, and third-party data such as credit card transactions and property ownership details. If an expense looks excessive, inconsistent, or unrelated to the business activity, HMRC can flag the case for review.

Common areas under review include:

• Home office and utility costs
  
• Travel and vehicle expenses
  
• Mobile phone and internet bills
  
• Meals, clothing, and entertainment costs
  
• Repairs, rent, and insurance for mixed-use properties

The “wholly and exclusively” rule explained

HMRC’s main test for allowing business expenses is whether they are “wholly and exclusively” incurred for the purpose of trade. If a cost includes an element of personal benefit, only the proportion relating to business can be claimed.

For example:

• If you use your home for business, you can claim part of the electricity, heating, and rent. The claim must reflect the actual portion of time and space used for work.
  
• If a car is used for both business and private journeys, only the business mileage should be deducted.
  
• If you use your mobile phone for both personal and work calls, you can only claim the percentage that relates to business use.
  

Expenses that are capital in nature—such as buying computers, tools, or vehicles—are treated separately under capital allowances rules rather than being deducted as trading expenses.

HMRC expects taxpayers to apply reasonable apportionment methods and maintain supporting records. Estimates without documentation are no longer acceptable under the new compliance checks.

The digital enforcement approach

Using the Connect data analysis platform, HMRC can access information from banks, social media, property records, and even online marketplaces. This system allows cross-referencing between declared income and lifestyle indicators such as holidays, car purchases, or home improvements.

If spending patterns appear inconsistent with declared income, HMRC may open an enquiry. These checks are not random—they are data-driven, often identifying discrepancies between reported business expenses and other financial activity.

The new campaign also encourages taxpayers to correct previous returns voluntarily if they realise expenses were incorrectly claimed. Doing this before an enquiry starts can significantly reduce potential penalties.

Common mistakes leading to HMRC checks

Expense Type	Common Mistake	Correct Approach
Home office	Claiming 100% of household bills	Apportion by rooms or usage hours
Travel	Including private journeys	Keep detailed mileage logs
Meals & entertainment	Claiming all meals	Only claim meals while travelling on business
Internet & phone	Full bill claimed	Separate business use based on actual usage
Repairs & maintenance	Personal home repairs included	Only claim if the property is used for business

HMRC’s Private and Personal Expenditure Toolkit highlights these areas as high-risk, urging both taxpayers and accountants to ensure accurate and consistent claims.

What this means for self-employed individuals and landlords

The renewed focus on personal expenditure will primarily affect:

• Sole traders filing Self Assessment returns
  
• Partnerships with shared business expenses
  
• Landlords claiming property-related deductions
  

HMRC expects detailed record-keeping, evidence of apportionment, and clear separation between private and business costs. Taxpayers who cannot justify their expense claims may face penalties or the disallowance of deductions, leading to higher tax bills.

How Apex Accountants Can Help With Personal Expense Claims 

At Apex Accountants, we help clients prepare accurate, compliant tax returns while optimising legitimate deductions. Our services include:

1. Expense Review and Risk Assessment

We review your expense categories to identify any high-risk or incorrectly claimed items. Our specialists ensure your claims meet HMRC’s “wholly and exclusively” rule.

2. Digital Record-Keeping Setup

We help you maintain digital records using HMRC-compliant software. This makes it easier to evidence expense claims if your return is reviewed.

3. Self Assessment Review and Submission

Our accountants prepare or check your self assessment return before filing, reducing the likelihood of enquiries and penalties.

4. HMRC Enquiry Support

If HMRC contacts you for clarification, we represent you in all correspondence and negotiate fair resolutions.

5. Tax Planning and Business Structuring

We advise on structuring your business costs in tax-efficient ways that avoid compliance risks while maximising allowable deductions.

Best practices to stay compliant

• Keep all receipts and invoices for a minimum of six years.
  
• Record your business use percentage for shared assets and services.
  
• Avoid claiming estimated or round figures.
  
• Review your expense claims annually for consistency.
  
• Get professional advice before submitting your return.
  

Conclusion

HMRC’s focus on personal expenditure on self assessment marks a stronger stance against incorrect expense claims. With advanced digital tools and increased data visibility, the risk of being questioned has never been higher.

At Apex Accountants, we help you stay compliant, claim what’s rightfully yours, and avoid unnecessary stress or penalties. Whether you’re self-employed, a landlord, or a company director, our expert team will guide you through the process with accuracy and care. Contact Apex Accountants today to review your expenses and protect your tax position.

Frequently Asked Questions

1. Will HMRC notify me if I need to file a Self Assessment return?

HMRC sometimes issues a Notice to File when it believes you have taxable income that has not been declared through PAYE. However, the responsibility ultimately rests with you. If you earn income outside regular employment—such as rental income, freelance work, or investment gains—you must check whether you meet the filing criteria.

You can use HMRC’s official online tool to confirm if you need to complete a Self Assessment return. If you receive a notice, you must still file, even if you think no tax is due. Those who no longer meet the filing requirements can request HMRC to withdraw their notice.

2. Can expenses be claimed without receipts?

Receipts and invoices are essential evidence for every expense claim. HMRC expects all claims to be backed by documentation. Only in rare cases—such as very small or cash-based purchases—may reasonable estimates be accepted if they are supported by clear notes or bank entries.

Relying on estimates increases the risk of disallowance during an enquiry. Keeping digital or physical records of every purchase is the safest approach.

3. What expenses can be claimed through HMRC?

Allowable business expenses include day-to-day costs that are wholly and exclusively incurred for business purposes. These can cover rent, utilities, marketing, insurance, travel, professional fees, software subscriptions, and training related to your trade.

Expenses that have both personal and business elements—such as mobile phone bills or vehicle use—should be apportioned fairly. Some categories, such as client entertainment or personal clothing, are not deductible. Large purchases like vehicles or machinery fall under capital allowances instead of standard expense claims.

4. Is HMRC warning people about side hustle income?

Yes. HMRC is running awareness campaigns reminding people earning money from side jobs, online sales, or freelance work that income over £1,000 per year must be declared. This includes digital platforms, renting property, influencer income, and gig economy work.

The campaign, known as Tax Help for Hustles, encourages early registration to avoid penalties and interest. HMRC is also reminding taxpayers to declare cryptoasset income where applicable.

5. What are the penalties for not filing a return?

Failing to file when required results in an automatic £100 fine, even if no tax is due. Continued non-compliance attracts further daily penalties, typically £10 per day, plus interest on any unpaid tax. HMRC may also remove disputed expense claims if you cannot justify them with evidence.

6. Do I need proof for every deduction I claim?

Supporting evidence is required for all deductions, especially those involving travel, equipment, and repairs. Acceptable records include invoices, receipts, contracts, or detailed mileage logs. If documentation is lost, obtain replacements or use bank statements to verify the transaction.

Digital storage platforms make it easier to retain these records for at least six years, as HMRC may request evidence even years after filing.

7. How much income requires Self Assessment registration?

The £1,000 trading allowance applies to individuals earning from self-employment or side activities. Income above that amount must be declared through Self Assessment. Registration should take place by 5 October following the end of the tax year in which the income was earned.

This applies whether your earnings are from freelancing, online sales, or other sources outside PAYE.

8. What happens if my personal expense claims are incorrect?

HMRC’s recent crackdown targets inaccurate personal expense claims made in tax returns. If business and personal spending are not properly separated, HMRC can disallow deductions and impose penalties.

Keeping accurate records and making reasonable apportionments between business and personal use protects you from challenges. HMRC’s digital systems now flag inconsistencies automatically, increasing the importance of transparency.

9. How is HMRC identifying false or inflated expense claims?

Using its Connect data system, HMRC analyses bank transactions, property records, and digital sales platforms to match spending against declared income. Any mismatch between lifestyle indicators and reported profits can trigger a compliance check.

Taxpayers with multiple income sources or unusually high expense claims are more likely to be reviewed.

10. How can Apex Accountants help me?

Our team supports clients in every step of the compliance process. We review your records, identify eligible expenses, and remove risky or unsupported claims before submission. We also help set up digital record-keeping systems aligned with HMRC’s standards.

If you’re contacted for a review, we manage the correspondence and negotiations on your behalf. We also provide ongoing tax planning to structure expenses efficiently and maintain compliance year after year.

At Apex Accountants, we combine technical accuracy with proactive guidance to keep your finances secure and HMRC-ready.