HMRC to Target Small Business Private Use Adjustments

HMRC has recently turned the spotlight on private use adjustments within business expenses for small businesses in order to encourage correct expense claims within self-assessment tax returns.

In this article, Tax Director, Liam Coulter considers what this means for sole traders, small businesses and the self-employed.

Who is HMRC targeting?

HMRC plans to commence a campaign focussing on private use (PU) adjustments for small businesses. Their upcoming digital campaign will aim to highlight problems with reporting PU adjustments in business expenses claimed on Self-Assessment Tax Returns and encourage correct business expense claims. This will mainly impact partnerships and the self-employed.

It is also important to note that HMRC intends to increase investigations into PU adjustments for business expenses claims.

What is a Private Use Adjustment?

Not all expenses are allowable for tax purposes. These may be called disallowable expenses or expenses to be added back. As well as this, there may be some expenses that are partly for business purposes and partly for personal purposes. No expenses for personal purposes are allowable.

Therefore, sole traders or partnerships that use assets for both business and private purposes will need to make some adjustments to the profit shown in the tax return.  For example, you might use your car mainly for business, but also use it for private purposes at the weekends or in the evenings, you will need to reduce the overall expense for the element of private use.  This could also apply to things like your mobile phone, business premises expenses, and broadband etc.

Expense apportionment should be reviewed each tax year to make sure the amount claimed against your profit is accurate.

What should I do if I haven’t been making Private Use Adjustments?

You should consider making an HMRC disclosure if you have been claiming expenses without making any PU adjustments in prior years (or if the PU adjustments have not been accurate).

As HMRC will actively be opening enquires into PU adjustments, coming forward first will almost certainly mean a reduction in penalties charged.

Wilson Nesbitt’s Tax team can help with making a correct expense claim on your tax return form or bring you up to date with HMRC through a disclosure.

If you have any questions on Private Use Adjustments or another query on tax, please get touch with our Tax Director, Liam Coulter.