The importance of calculating private use adjustments correctly
Private use (PU) adjustments are going to be the focus of HMRC’s small business compliance teams in the coming months, as they are viewed as a major compliance risk and a key reason for the small business tax gap.
What are private use adjustments?
PU adjustments need to be made when expenditure is incurred on an asset which is used for both private and business purposes. Generally, the proportion of the asset which is used for business purposes is tax deductible.
Some examples of expenditure which may require PU adjustments include:
- Internet and phone expenses
- Vehicle expenses
- Capital allowances when the asset acquired is partially used for private purposes
What are HMRC’s plans?
HMRC ran a trial in 2024 where they encouraged around 600,000 Income Tax Self-Assessment (ITSA) filers to report PU adjustments accurately. This trial generated more than £27 million in tax from incorrect adjustments made by taxpayers.
Following the 2024 trial, HMRC is now running a digital campaign to encourage businesses to make correct expense claims by accurately reporting PU adjustments where necessary. HMRC is also planning on increasing the number of enquiries made into PU adjustments where it is suspected that an incorrect adjustment (or no adjustment at all) has been made.
We’re here to help
With HMRC’s focus in mind, it is more important than ever for businesses to ensure that expenditure claims are restricted to the business element only, and recurring dual purpose expenses are correctly apportioned in line with the specific circumstances of each tax year.
It may be advisable to review your previous and current expense claims to ensure the correct adjustment has been made, to mitigate any potential penalties and interest which could arise from an underpayment of tax.
If you would like any advice on PU adjustments or help with calculating the adjustment, please get in touch with a member of our specialist team via the form below.
