Which Expenses HMRC Actually Challenges in MTD Enquiries

What HMRC Actually Challenges - And Why It Matters for DIY Filers

Most guides about expenses focus on what you can claim. This one focuses on something different: which claims HMRC actually pushes back on when they open an enquiry into your records. Because claiming something you're entitled to and being able to defend that claim are two very different things. If HMRC opens a compliance check on your Making Tax Digital (MTD) records, the question won't be "did you know this was allowable?" It will be "can you prove it?"

This guide covers the expense types that come up most often in HMRC enquiries, the specific evidence problems that cause claims to fail, and what you can do now - before any enquiry happens - to make sure your records hold up.

How HMRC Enquiries Actually Start

HMRC selects returns for enquiry in two main ways. Some are random. Most are not. They use a risk-scoring system that flags unusual patterns - expenses that seem high relative to income, categories that shift significantly between years, or descriptions that are vague and unverifiable.

With MTD, your quarterly updates give HMRC more frequent data points across the year. That means more opportunities to spot anomalies. An expense spike in one quarter, or a category that jumps unexpectedly, can trigger automated flags before you even file your final declaration.

If you want to understand what a compliance check looks like in practice, this post on HMRC compliance enquiries after filing walks through what to expect.

The Expenses HMRC Challenges Most Often

1. Meals and Subsistence

This category is one of the most frequently challenged, and for good reason - it is also one of the most frequently overclaimed. HMRC's rules here are narrow. You can only claim meals as a business expense if you are travelling away from your usual place of work on a temporary basis, and if the travel itself is allowable.

What HMRC challenges: claiming everyday lunches, coffee shop visits, or meals at your regular working location. If you work from home or from a fixed base, a meal bought nearby is not a business expense. It does not matter that you were thinking about work while eating it.

What you need to defend a valid claim: a record of the date, where you travelled to, why the travel was necessary, and a receipt. A bank statement alone is not enough. HMRC will ask what the meal was for and expect you to connect it to a specific business journey.

2. Working From Home

HMRC challenges home office claims when there is no clear calculation behind the figure. Claiming a flat amount with no supporting workings is a red flag. So is claiming a percentage of household bills that looks unusually high.

There are two ways to claim this expense. The simplified flat rate (currently £10 to £26 per month depending on hours worked from home) needs minimal evidence - just a record of the hours worked from home each month. The actual cost method - where you calculate a proportion of rent, utilities, and broadband based on room usage and time - needs a clear written calculation and the underlying bills.

What HMRC challenges: a round-number claim with no calculation, or an actual-cost claim where the bills cannot be produced. If you claimed 40% of your mortgage as a business expense, you need to be able to show how you reached that figure.

3. Motor and Travel Expenses

Travel is one of the highest-risk expense categories. HMRC pays close attention to mileage claims in particular, because they are easy to inflate and hard to verify after the fact.

The standard approach for most sole traders and landlords is to claim mileage at HMRC's approved rates (55p per mile for the first 10,000 miles in a car, then 25p). To claim this, you need a mileage log - a record of each journey showing the date, destination, purpose, and miles travelled. A note that says "various client visits - 3,200 miles" is not a mileage log. It will not survive an enquiry.

Commuting is never allowable. Travel from your home to a fixed regular workplace is not a business expense, even if you are self-employed. HMRC challenges claims where the majority of mileage appears to be home-to-base travel in disguise.

For more detail on how mileage rates work within MTD, see this guide to claiming mileage allowances.

4. Entertainment and Hospitality

This is probably the most misunderstood expense category. Client entertainment - taking a customer out for dinner, buying drinks at a networking event, hosting a client at a sporting event - is not an allowable business expense. It never has been. HMRC is very clear on this.

What sometimes is allowable: staff entertaining (if you have employees, including yourself if you have a specific structure), or subsistence costs during genuine business travel. But the line between "entertaining a client" and "legitimate business meal during a meeting" is one HMRC scrutinises closely.

The common mistake is putting client entertainment through under "hospitality" or "business development" in a quarterly update and hoping it does not get looked at. It often does. If a description says "dinner with client" and there is no other context, HMRC will challenge whether it meets the criteria for an allowable deduction.

5. Equipment and Tools - Capital vs Revenue

When you buy a piece of equipment - a laptop, a camera, a power tool - there is a question about whether it counts as a revenue expense (deductible in the year of purchase) or a capital item (treated differently under capital allowances rules). Most sole traders simply put everything through as an expense without thinking about this distinction.

HMRC challenges large one-off equipment purchases that appear in the general expenses section without any consideration of whether capital allowances apply instead. This is particularly relevant for higher-value items. The rules around this are not simple, but the key point is that describing a £2,400 piece of machinery as "tools and equipment" and deducting it in full in one quarter without any record of what it was or when it was bought is a flag.

If you want to understand the capital allowances side of this, this guide to capital allowances in MTD covers the basics.

6. Landlord Repairs vs Improvements

For landlords, the repair-versus-improvement question is one of HMRC's favourite areas to probe. Repairs to restore something to its original condition are allowable. Improvements that make a property better than it was before are not - they are capital expenditure.

Replacing a broken boiler like-for-like is a repair. Replacing a basic boiler with a high-efficiency system that adds value to the property sits in a grey area that HMRC may challenge. Fitting a new bathroom where there was none before is an improvement, not a repair.

What HMRC challenges: a large figure in the "repairs and maintenance" category with no breakdown, or a lump sum that looks like it could be a renovation project rather than genuine repair work. They may ask for invoices, photographs, or a description of the work done.

See this post on repairs versus capital works for a fuller breakdown of where the line sits.

7. Professional Fees and Subscriptions

Subscriptions and professional fees are allowable when they are directly related to the business. HMRC challenges claims where the connection is unclear - a subscription that could be personal as easily as professional, or a professional membership that does not obviously relate to the trade being carried on.

The common problem is vague descriptions. "Subscription - £49.99" tells HMRC nothing. They will want to know what the subscription was for, who it was with, and why it was necessary for the business. If you cannot answer those questions with a record, the claim is at risk.

8. Mixed Personal and Business Expenses

Expenses with a personal element - a phone used for both work and personal calls, a broadband connection used at home, a car used for business and private journeys - can only be claimed for the business proportion. This is well-known. What is less well-known is that HMRC actively challenges claims where the split looks implausible.

Claiming 90% business use for a personal mobile phone when you have no employees and work from home is the kind of figure that gets questioned. HMRC may ask how you arrived at the percentage, and if you cannot show a calculation or log, the split will likely be adjusted downward.

For guidance on how to handle mixed-use expenses in your MTD records, see this post on claiming the business percentage.

The Evidence Problems That Make Claims Fail

It is worth being clear about this: in most HMRC enquiries, the expense itself is not the problem. The problem is the lack of evidence. These are the specific evidence failures that cause claims to be disallowed:

• No receipt or invoice - a bank statement showing a payment is not the same as a receipt. HMRC can and does ask for the actual invoice.
• Vague descriptions - "miscellaneous expenses" or "business costs" will not survive scrutiny. Every line needs to identify what was bought, from whom, and why.
• No record of business purpose - especially for travel, meals, and entertainment. The receipt alone is not enough if you cannot explain the business reason.
• Reconstructed records - records created after the fact, when HMRC has already asked for them, are treated with suspicion. Contemporary records - made at the time - carry far more weight.
• No mileage log for travel claims - this is a specific and consistent failure. HMRC will ask for a log. If you do not have one, the claim will be challenged in full.

If you want to understand what good MTD record-keeping looks like in practical terms, this guide on what proof HMRC needs is worth reading before your next quarterly update.

Red Flags That Trigger Closer Scrutiny

These are the patterns that increase the likelihood of HMRC taking a closer look at your records:

• Expenses that are very high relative to income in the same category
• A significant increase in expenses from one year to the next with no obvious reason
• Very low profit margins that seem inconsistent with the type of business
• Expenses that are round numbers (£500, £1,000) rather than real figures
• Categories that do not match the type of business - a freelance writer with large "tools and machinery" costs, for example
• Repeated expenses in categories that are commonly misused, such as subsistence or entertaining

None of these things automatically mean your claim is wrong. But they increase the chance that HMRC will ask questions. If your records are in order, that is fine. If they are not, these patterns can lead to a full enquiry.

How to Build Claims That Survive Scrutiny

You do not need to be an accountant to keep records that hold up. You just need to be consistent and specific. Here is what defensible expense records look like in practice:

1. Capture the receipt at the point of purchase. A photo taken immediately is far better than something retrieved weeks later.
2. Write a brief note of the business purpose on the same day. "Travel to site visit - 47 High Street project" is a good note. "Business expense" is not.
3. Keep a mileage log for every business journey. Date, start point, destination, purpose, miles. A simple spreadsheet works. Do it the same day.
4. Document any calculation behind a percentage claim. If you are claiming 30% of your phone bill, write down how you worked that out and keep it with the bill.
5. Use consistent, specific descriptions in your quarterly update. Avoid catch-all categories. If your software lets you add a description or reference, use it.

For a practical system for storing and organising these records, this post on MTD records storage offers a straightforward approach that does not require specialist software.

A Note on Grey Areas

Some expenses sit in genuinely ambiguous territory - the business use of a home studio, a trade magazine that is partly personal interest, a mobile phone plan with mixed use. HMRC does not always challenge these. But when they do, the question is the same: can you show your reasoning?

If you made a reasonable, documented decision about how to treat a grey-area expense, HMRC is generally more accepting than if you made an undocumented guess. Document your thinking. A brief written note explaining why you treated something a certain way is not excessive - it is exactly the kind of contemporary record that carries weight if you are ever asked to explain yourself.

For common grey-area situations, this post on grey-area MTD expenses covers ten scenarios that come up regularly.

Summary

The expenses HMRC challenges most often are not the obscure ones - they are the everyday categories where record-keeping tends to slip: meals, mileage, home office, entertainment, mixed-use costs, and large one-off purchases. In most cases, the claim itself may be valid. What fails the enquiry is the lack of evidence to support it. The fix is not complicated - it is consistent, specific, contemporary record-keeping from the day the expense occurs, not at the end of the quarter when memory has faded. Build that habit now, and an HMRC enquiry becomes something you can answer rather than something you fear.