What should a sole trader do if HMRC requests proof of expenses?

Understanding why HMRC asks for proof of expenses

If you are a sole trader, being asked by HM Revenue & Customs (HMRC) to provide proof of expenses can feel intimidating. It is also more common than many people think. HMRC may ask for evidence during a compliance check, a random enquiry, a targeted campaign focused on certain sectors, or because something in your tax return does not match what HMRC expects for your type of business. None of these automatically mean you have done anything wrong.

HMRC’s goal in requesting proof is straightforward: to confirm that the expenses you claimed were genuinely incurred for business purposes, were allowable under the rules, and were recorded accurately. Sole traders are allowed to deduct certain business costs from their turnover when calculating taxable profit, but the costs must be supported by records. If HMRC cannot verify an expense claim, they may disallow it, adjust your profits upward, and potentially charge interest or penalties depending on the circumstances.

The best approach is to treat the request as a structured admin task. Respond calmly, meet deadlines, provide clear evidence, and keep your communication professional. Doing this well often shortens the process and reduces the risk of HMRC widening their review into other areas.

First steps: read the HMRC letter carefully

The letter or message from HMRC should explain what they are checking, which tax year(s) are involved, and what they want you to provide. Your first job is to read it slowly and identify the specifics. HMRC may request a sample of transactions, a full breakdown of expense categories, bank statements for a given period, invoices and receipts, mileage logs, or details on how you calculated a proportion of mixed-use costs (such as mobile phone or home working expenses).

Pay particular attention to deadlines. HMRC will usually specify a date by which they need the information. Missing that date can escalate matters, trigger follow-up letters, or lead to decisions being made without your input. If the deadline is genuinely difficult to meet because you need to retrieve records, speak to your accountant, or rebuild missing documents, you should contact HMRC as soon as possible to request extra time. It is usually better to proactively ask for an extension than to go silent.

Also confirm the format HMRC wants. Sometimes they will accept scanned copies or digital exports. Other times they may want originals or specific reports. If the instructions are unclear, call HMRC (using contact details from an official letter, not from an email link) and ask what will satisfy the request.

Confirm that the request is genuine

Before sending any sensitive financial information, make sure the request is authentic. HMRC scams exist and can look convincing. A legitimate request typically arrives via post or through your official online tax account, and it should include identifying information such as your Unique Taxpayer Reference (UTR) or details HMRC would reasonably know.

If you received the request via email or text, be cautious. Do not click links or download attachments. Instead, go directly to your known HMRC account portal through your usual method or call HMRC using a trusted number and ask them to confirm whether the request is on record. It is perfectly reasonable to verify the legitimacy of a request, and doing so protects you and your business.

What counts as “proof of expenses” for a sole trader?

In practical terms, “proof” usually means documents showing what you bought, when you bought it, how much it cost, who you bought it from, and how it relates to your business. The strongest evidence often includes:

Receipts and invoices: These should show the supplier name, date, description of goods or services, and the amount paid. A VAT invoice may be needed if you are VAT registered and claimed input VAT.

Bank statements and card statements: These can help confirm that payments were actually made. While bank statements alone may not prove the business purpose, they are helpful supporting evidence.

Contracts and agreements: Especially relevant for subcontractors, freelancers, rent or hire agreements, and ongoing services.

Booking confirmations and travel documents: Useful for business travel, hotels, transport, or event attendance, particularly where the business purpose needs explaining.

Mileage logs: If you claim vehicle expenses using mileage rates, HMRC will generally expect a mileage record showing dates, destinations, purpose, and miles.

Working papers and calculations: For mixed-use or apportioned expenses (home office, phone, broadband), you may need to show the method used and how you arrived at the business percentage.

The key concept is that proof should be credible, consistent, and capable of being understood by someone who does not know your business. If your evidence requires context, you can add a short explanation in writing.

Organise your records before you respond

Once you know what HMRC wants, organise your documents in a way that makes it easy to review. A tidy, well-labelled submission reduces questions and signals that you take compliance seriously. Start by creating folders by tax year and then by category (for example: “Advertising”, “Travel”, “Office Supplies”, “Subcontractors”, “Equipment”, “Use of Home”, and so on). Within each folder, name files clearly with the date, supplier, and amount (for example: “2024-06-12_Staples_54.99.pdf”).

If HMRC asked for a sample, do not overwhelm them with everything. Provide exactly what they requested, plus any minimal supporting material needed to make it coherent. However, if you know a particular expense might raise questions (for example, a high-value purchase or something that could look personal), it can be wise to include a brief explanation alongside the evidence to avoid back-and-forth.

If you keep records in accounting software, consider exporting a report that matches your tax return categories, and then cross-referencing those lines to supporting documents. A simple spreadsheet mapping each expense line to a receipt file name can be very effective.

Check that your expenses are actually allowable

Before you send evidence, take the opportunity to sanity-check your own return. Sole traders can generally claim costs that are “wholly and exclusively” for business purposes. Where something is partly personal, you typically need to apportion it and claim only the business proportion. HMRC requests can sometimes reveal that an expense was recorded incorrectly or that your apportionment method is weak.

Common areas where sole traders run into issues include:

Meals and subsistence: Ordinary day-to-day meals are usually not allowable. Subsistence may be allowable when you are travelling for business and the cost is additional because of that travel. This area often depends on facts and patterns, so evidence and a clear rationale matter.

Clothing: Everyday clothing is generally not allowable, even if worn for work. Protective clothing or uniforms may be allowable.

Entertainment: Client entertainment is usually not allowable for income tax purposes, even if it feels business-related. Some promotional events can be complex, but as a general rule, entertainment claims attract scrutiny.

Home working: Claiming a portion of household bills is often allowed, but the method of calculation should be sensible and defensible (for example, based on rooms used and time used).

Vehicle costs: You must be consistent about whether you use mileage or actual costs for a particular vehicle. Mixed-use is common and must be handled properly.

If, during your review, you spot a genuine mistake, it is often better to deal with it proactively rather than hoping HMRC will not notice. Depending on the situation, you may need to disclose an error and offer a correction. If you are unsure, this is a good point to involve an accountant or tax adviser.

If you are missing receipts: what to do

Many sole traders worry because they do not have every single receipt. While it is best practice to keep robust records, missing evidence does not automatically mean an expense claim fails. The question becomes whether you can provide alternative evidence that is credible and supports the amount and business purpose.

Possible alternatives include:

Duplicate invoices: Many suppliers can reissue invoices or provide account statements showing transactions.

Bank or card records: These can support that a payment was made to a supplier on a particular date for a particular amount.

Email confirmations: For online purchases, emails showing order details, receipts, or booking confirmations can be persuasive.

Delivery notes or service records: Evidence that goods were delivered or services were performed can support legitimacy.

Contemporaneous notes: If you keep a diary, job sheet, or project records, these can show why a cost was incurred.

If you cannot replace the proof for certain expenses, you should consider whether those claims are defensible. HMRC may accept reasonable alternative evidence for low-value routine items, but they are less likely to accept vague explanations for large or unusual transactions. The more an expense looks personal or discretionary, the stronger your evidence needs to be.

How to present digital records and photos of receipts

HMRC generally accepts digital records, and many sole traders now store receipts as photos or scans. If you submit digital images, make sure they are legible. A blurry image that cuts off the date, supplier name, or total will not help. Where possible, save receipts as PDF files, and keep them in a logical structure.

If you are using receipt-capture apps or accounting software attachments, you can export those images in bulk. When sending them to HMRC, avoid sending hundreds of separate email attachments unless HMRC has asked for that approach. Instead, consider grouping documents into a small number of PDFs or a structured zip file if HMRC accepts it. Always follow HMRC’s stated submission method, and be mindful of security and file size limits.

When you provide digital evidence, add a summary index. A short document listing the expense lines and the corresponding file name can make the review smoother and demonstrate professionalism.

Explaining business purpose: the missing piece in many submissions

Even when a receipt is available, HMRC may still ask, “How is this for the business?” That is because a receipt shows what you bought, not necessarily why you bought it. A hardware store receipt could be for business materials, or it could be for personal home improvements. A restaurant receipt could be subsistence while travelling, or it could be personal dining. A laptop purchase could be for business, or for mixed use.

The simplest way to address this is to add short, factual explanations for any expense that might be ambiguous. For example:

“Printer ink purchased for invoicing and customer reports.”

“Train to Manchester for client meeting with ABC Ltd; meeting notes attached.”

“Hotel for two nights during on-site installation project; contract dates attached.”

These explanations should be concise and consistent with the broader story of your work. Avoid overexplaining, and avoid statements that invite extra questions. You are aiming to provide context, not a long narrative.

Apportioning mixed-use expenses properly

Mixed-use expenses are common for sole traders: mobile phones, broadband, home utilities, cars, and sometimes equipment used both personally and for business. HMRC often requests proof not only of the cost, but of the apportionment method.

A good apportionment method is:

Reasonable: It reflects reality and can be explained simply.

Consistent: You apply it in the same way over time unless circumstances change.

Evidence-based: You can show the calculation and, where possible, supporting facts.

For a mobile phone, you might base apportionment on call/data usage or on a reasonable estimate supported by patterns of use. For home working, you might apportion heating and electricity based on the proportion of the home used for business and the time spent working. For vehicles using actual costs, you might apportion based on business mileage versus total mileage.

When HMRC asks for proof, include a one-page explanation of your apportionment. For example: “Home office: one room used as office (1 of 5 rooms) for 40 hours per week; claim calculated accordingly.” Keep it factual. If you are using simplified expenses, explain that and provide the relevant mileage or home-working basis HMRC needs to see.

Common categories HMRC scrutinises and how to support them

Some expense categories are more likely to trigger questions. If HMRC has asked for proof, it helps to anticipate what they will focus on.

Travel and mileage

Travel claims are often scrutinised because travel can be partly personal. To support travel expenses, provide receipts for tickets, fuel, parking, tolls, and hotels (as relevant), plus a clear business purpose. For mileage claims, a log is key. A good mileage log shows date, start and end points, client or project, and miles. If you do not have a formal log, reconstruct one as accurately as possible using diaries, calendar entries, job records, mapping tools, and invoices.

Use of home

Home working is legitimate for many sole traders, but the calculation must be sensible. Provide evidence of your household bills (energy, council tax if relevant to your method, broadband) and a clear breakdown showing how you calculated the business portion. If you use a simplified method, provide the basis (for example, number of hours worked from home) and show that it matches your working pattern.

Repairs, maintenance, and tools

These can look personal if you are in a trade that overlaps with home ownership. Provide invoices showing the items purchased and link them to jobs or business assets. If you are a contractor and you bought parts for a job, show the customer invoice or job sheet that corresponds to the purchase.

Professional fees and subscriptions

Accountancy, legal fees related to the business, and professional subscriptions are often allowable. Support these with invoices and proof of payment. If a subscription is linked to your work (for example, trade association membership or industry software), include a brief note of why it is necessary.

Equipment and capital items

Higher-value items such as laptops, cameras, machinery, or vehicles tend to attract scrutiny. HMRC may be looking at whether an item should be treated as capital (and relieved through capital allowances) rather than as an ordinary expense. Provide the purchase invoice, evidence of payment, and an explanation of business use. If there is personal use, be clear about your apportionment approach.

Advertising and marketing

Marketing costs are usually easier to justify, but HMRC may still ask for evidence of what was purchased. Provide invoices for online ads, flyers, website hosting, marketing consultants, and promotional materials. For digital ads, screenshots of invoices or platform billing statements can help, as can a summary report from the advertising platform.

How to communicate with HMRC effectively

Your communication style matters. Aim to be cooperative, clear, and factual. When you write to HMRC, structure your response so it is easy to understand. A useful format is:

1) A short cover letter explaining what you are sending, which tax year it relates to, and how the documents are organised.

2) A summary schedule (spreadsheet or table in a document) listing the expenses HMRC asked about, amounts, and the supporting document reference.

3) The evidence in the order shown in the schedule.

When HMRC asks questions, answer precisely what they asked. Avoid giving unnecessary extra details that could confuse the issue. If HMRC requests additional information, treat each new request as an item to track, and respond with the same structured approach.

If you speak to HMRC by phone, take notes: date, time, who you spoke to, and what was agreed. After a phone call, it can be helpful to follow up in writing summarising the outcome, especially if any deadlines or submission methods were discussed.

When to involve an accountant or tax adviser

Many sole traders can handle straightforward evidence requests themselves. However, professional support is worth considering if any of the following apply:

You claimed complex expenses such as significant travel, substantial home working, mixed-use vehicles, or large capital items.

You are missing key records and need to rebuild evidence or decide how to handle gaps.

HMRC’s enquiry seems to be widening beyond the original request into broader aspects of your business.

You suspect an error in your tax return that may need disclosure or amendment.

You feel overwhelmed and worry that an unstructured response could create more risk.

A tax adviser can help you present evidence in a way that aligns with HMRC expectations, clarify technical points, and act as a buffer in communications. Even a one-off consultation can be valuable if it prevents a costly misunderstanding.

What happens if HMRC disallows expenses?

If HMRC decides that certain expenses are not allowable or not proven, they may adjust your taxable profit upward. This can increase your income tax and National Insurance liabilities for that year. HMRC may also charge interest on underpaid tax. In some cases, penalties can apply, especially if HMRC believes the inaccuracy was careless or deliberate.

However, a disallowance is not always the end of the road. You can often discuss the decision, provide further evidence, or clarify misunderstandings. If you genuinely have support for the expense but it was not initially clear, supplying additional documentation or a better explanation can change the outcome.

If you disagree with HMRC’s conclusions, there are formal processes for review and appeal. The exact route depends on what stage the enquiry has reached and what decision has been issued. Professional advice is particularly helpful if you are considering an appeal, because deadlines and the quality of your reasoning matter.

Reducing penalty risk: cooperation and disclosure

HMRC penalties are influenced by behaviour and cooperation. If an error exists, how you handle it matters. Being prompt, transparent, and cooperative can reduce penalties significantly. If HMRC sees that you have made a genuine effort to keep records and you are engaging constructively, that often helps.

If you discover a mistake, do not panic. Focus on identifying the scope of the error, gathering facts, and deciding the best way to disclose. In many situations, a proactive correction is looked upon more favourably than an issue HMRC has to uncover through further probing.

That said, you should avoid making admissions you do not understand. If HMRC suggests something is wrong and you are unsure, ask for clarification or get professional advice before agreeing.

Practical checklist for responding to an HMRC proof-of-expenses request

Here is a practical step-by-step checklist you can follow to build a strong response:

1) Identify the scope: Note the tax year(s), the categories, and whether HMRC wants a sample or full records.

2) Log the deadline: Put it in your calendar and plan backwards to give yourself time to prepare.

3) Gather source documents: Receipts, invoices, bank statements, contracts, mileage logs, and any relevant emails.

4) Reconcile to your accounts: Make sure the totals and entries align with what you claimed.

5) Flag high-risk items: Anything ambiguous, high-value, mixed-use, or potentially personal.

6) Add explanations where needed: One-line business purpose notes for ambiguous items; a short apportionment explanation for mixed-use.

7) Create an index: A schedule mapping each claimed expense to a document reference.

8) Submit securely and as instructed: Follow HMRC’s submission method and keep copies of everything sent.

9) Record communications: Keep notes of calls and copies of letters or messages.

10) Review your systems: After you respond, improve record-keeping to reduce future risk.

Improving your record-keeping so this is easier next time

Even if the current request is manageable, it is worth using the experience to strengthen your systems. Better records reduce stress, make tax returns more accurate, and can protect you in future checks. Practical improvements include:

Use a dedicated business bank account: This reduces mixing personal and business spending and makes evidence clearer.

Capture receipts immediately: Use an app or take a photo and upload it to a structured folder. Make sure the image is legible.

Keep a mileage log as you go: Reconstructing mileage months later is difficult and less persuasive.

Document mixed-use assumptions: Save a simple note describing how you apportion home, phone, and vehicle costs.

Reconcile monthly: Checking your accounts regularly makes it less likely you will have missing documents or miscategorised items.

Retain key contracts and job records: These support business purpose and timing, especially for travel and materials.

Good record-keeping is not just about satisfying HMRC. It also helps you understand your profitability, pricing, and cash flow, which is essential for a healthy sole trader business.

Handling the emotional side: staying calm and methodical

It is normal to feel anxious when HMRC asks for proof. Many sole traders equate an enquiry with wrongdoing, but in reality, HMRC checks can be routine. The best antidote to worry is structure. Break the task into steps, tackle one category at a time, and focus on producing a coherent evidence pack.

If you find yourself spiralling into worst-case scenarios, bring it back to what you can control: deadlines, organisation, and clear explanations. If you have an adviser, use them. If you do not, consider at least getting a one-off review of your response, especially if the amounts are significant.

What to do if HMRC asks follow-up questions

HMRC may come back with follow-up questions after reviewing your evidence. This does not necessarily indicate a problem. It may simply mean that they need clarification. When you receive follow-up questions:

Respond point-by-point: Copy each question into your reply and answer beneath it. This reduces confusion.

Keep explanations factual: State the business purpose and link to evidence.

Provide additional documents only where relevant: Avoid sending large volumes of unrelated material.

Maintain consistency: Ensure your explanations align with the records and your business activities.

If HMRC’s questions broaden significantly, consider whether the enquiry is expanding and whether you should involve a professional. Sometimes what starts as a proof-of-expenses request can evolve into a more comprehensive review if HMRC finds inconsistencies.

Special situations: cash purchases and informal suppliers

Some sole traders operate in environments where cash purchases occur or where suppliers do not provide formal invoices. HMRC is often sceptical of undocumented cash spending, so your approach needs to be careful. If you have cash transactions:

Provide whatever evidence exists: Till receipts, supplier notes, or written confirmations.

Support with business records: Job sheets, materials lists, and client invoices that show the cash purchase was necessary for the work.

Maintain a petty cash log: If you regularly use cash, a petty cash book showing date, amount, purpose, and supporting receipt strengthens credibility.

For informal suppliers, ask for a written invoice or receipt going forward. Even a simple document with supplier details, date, description, and amount can help. The goal is to create a clear audit trail.

What if HMRC questions your overall lifestyle or income?

In some cases, HMRC enquiries can touch on whether declared income seems consistent with the scale of claimed expenses or with personal living costs. This can feel intrusive, but it often stems from HMRC attempting to assess whether profits have been understated. The best defence is robust business records: complete sales invoices, bank deposits matching turnover, and expenses supported by proof and logic.

If HMRC appears to be challenging your overall figures rather than just requesting proof of specific expenses, professional advice becomes more important. Broader enquiries can involve technical arguments about trade, timing, and accounting methods, and the stakes can be higher.

Final thoughts: treat it like an audit pack

When HMRC requests proof of expenses, your job is to create an “audit pack” that answers their questions clearly. The strongest responses are organised, evidenced, and consistent with the reality of your business. Provide what was requested, support it with documents and concise explanations, and keep the process professional.

Most importantly, view this as an opportunity to tighten your systems. A sole trader business is often run with limited time and resources, and record-keeping can slip down the priority list. But when HMRC asks questions, good records turn a stressful situation into a manageable administrative exercise.

If you respond methodically and keep your evidence clear, you put yourself in the best possible position: HMRC can verify your claims, the enquiry can conclude faster, and you can get back to running your business with confidence.