HMRC Increasing Focus on Private Use Element of Business Expenses

HM Revenue & Customs (HMRC) has recently highlighted private use adjustments as an area receiving their greater attention during small business compliance checks.

HMRC expects these to be carefully reviewed so that only the correct proportion is claimed for tax purposes.

What is a Private Use Adjustment?

For many small businesses, certain costs naturally have a mixture of personal and business use. A private use adjustment is required so only the portion relating to the business is claimed as an allowable expense.

Common examples of mixed-use expenses

Some of the most common expenses that may require a private use adjustment include:

• Motor vehicle costs

• Home office/household running costs where a business is operated from home

• Internet and mobile phone bills

• Utility costs where only part of the property is used for business

As these expenses often serve both personal and business purposes, it is important that a reasonable and consistent method is used to calculate the business proportion.

If an expense is entirely personal, it should not be included in the business accounts at all.

Why does this matter?

If private use is not correctly accounted for, the business may claim more or less tax relief than it is entitled to. If HMRC reviews the accounts and identifies personal expenditure within business claims, this could lead to additional tax being payable, together with interest and potentially penalties.

What should business owners do?

Business owners should periodically review any expenses that may include a personal element and ensure that:

• The business-use proportion is reasonable

• The method used to calculate the split is consistent

• Supporting records are retained where possible

Keeping clear records to support any business-use percentages, such as mileage logs, usage records, or reasonable calculations, can help demonstrate that claims are accurate and justifiable.

If your circumstances change during the year, for example business use increases or decreases, the apportionment should also be updated to reflect this.

If you would like to discuss how private use adjustments apply to your business, please get in touch.