Getting private use adjustments right

HMRC are focussing their small business compliance activity on private use (PU) adjustments because they see them as a key compliance risk and a significant contributor to the small business tax gap.

In the coming months, HMRC will be running a digital campaign to highlight problems with reporting PU adjustments in business expenses in Income Tax Self Assessment (ITSA) returns and to encourage correct business expense claims, taking into account accurate PU adjustments where applicable.

This follows a trial in 2024 where around 600,000 ITSA taxpayers were encouraged to report accurate PU adjustments. HMRC tell us that the trial generated over £27 million in tax, but also highlighted widespread reporting of disallowable private use in business expenditure.

HMRC are also planning to open more enquiries into PU adjustments for business expenses claims.

This is an opportunity for members to remind clients that:

• expenditure claims should be restricted to those for business use only.
• expenses should be apportioned correctly for the expenditure and circumstances of the particular tax year.

Members should at all times follow the PCRT Helpsheet A: Submission of tax information and ‘tax filings’ which provides guidance for members on the application of the PCRT Fundamental Principles and Standards for Tax Planning when dealing with the day-to-day work of filing tax information and completing tax filings, including the issues of: responsibilities, materiality, disclosure and approval.

HMRC disclosure routes should be considered for cases where there are inaccuracies associated with PU adjustments in previous years’ tax returns. Members are reminded that when guiding clients through making a disclosure they must comply with the PCRT fundamental principle of professional competence and due care. See also Disclosures to HMRC - guidance for members.