As HMRC tax changes take effect in 2025, finance leaders across UK SMEs are reviewing their expense policies to ensure compliance, manage risk, and prepare for further digital transformation.
From updates on benefit-in-kind charges to digital recordkeeping expectations under Making Tax Digital (MTD), this year’s changes reflect HMRC’s growing focus on accuracy and automation.
In this guide, we break down the key expense-related tax changes for 2025 and what they mean for finance managers, financial controllers, and CFOs – especially those managing mileage reimbursements, VAT claims, and compliance workflows.
Please note: This article is intended as a general guide. For advice tailored to your business’s specific circumstances, we recommend consulting a qualified tax professional.
Key HMRC expense rule changes in 2025
In 2025, HMRC introduced a few updates that affect business expense management, though many core rules remain consistent with 2024.
The most relevant changes and points of note include:
1. Mileage reimbursement rates remain unchanged
Despite rising fuel and vehicle costs, HMRC’s mileage rates remain frozen for 2025:
The approved rates are still:
45p per mile for the first 10,000 business miles
25p per mile thereafter
24p for motorcycles
20p for bicycles
While this simplifies planning (no need to adjust your expense policy rates), it also means the allowance hasn’t kept up with inflation, a point of contention among tax professionals.
For now, CFOs should continue using the 45p/25p mileage rates to reimburse employees tax-free.
Just remember: if you choose to pay above those rates to better cover employees’ costs, the excess is taxable for the employee and reportable to HMRC.
Also, don’t forget about HMRC’s Advisory Fuel Rates (AFRs) if reimbursing fuel for company car users. These are updated quarterly and vary by engine size and fuel type.
Pro tip: Use a mileage-tracking tool that prompts employees for required journey details (date, purpose, distance). ExpenseIn’s built-in mileage tracker ensures compliance with minimal admin.
2. Updates to company vehicle benefits
For the 2025-26 tax year, taxable benefit values for company-provided vehicles have increased slightly:
For example, the flat benefit charge for a company van rose to £4,020 (up from £3,960 in 2024-25).
Similarly, the annual multiplier used to calculate tax on company car fuel benefit jumped to £28,200 (from £27,800).
These inflation-based changes affect P11D reporting, not day-to-day reimbursed expenses, but finance teams should update payroll systems accordingly.
3. Making Tax Digital (MTD) progression
There are no new Making Tax Digital (MTD) mandates for 2025, but HMRC is reinforcing the importance of digital compliance:
MTD for VAT is already mandatory
MTD for Income Tax begins in April 2026 for some
VAT penalties are increasing (late payment interest now 4% above base rate)
Action item for 2025: Audit your current expense tracking processes. Ensure you’re using MTD-compatible expense management software and maintaining a fully digital audit trail.
MTD-compliant business expense tracker apps like ExpenseIn create a clear digital trail from each expense to your accounting records, making VAT reporting easier and helping you stay audit-ready if HMRC ever reviews your claims.
Penalty alert: Non-compliance can result in fines (e.g. £400 per VAT return for not using compatible software, plus daily penalties for failing to maintain digital records).
4. VAT and expense policy reminders
HMRC continues to stress the importance of having valid VAT receipts for reclaiming input VAT:
Receipts must show the supplier's name, VAT number, date, and VAT amount
Flat per diem or round-sum payments without receipts are not eligible for VAT recovery
Pro tip: Train employees to submit receipts for all VATable expenses, and use automation to flag missing documentation before approval. ExpenseIn can enforce these rules automatically and provide clean reports for your VAT returns.
Are digital receipts still compliant with HMRC in 2025?
Yes. HMRC fully accepts digital receipts (or e-receipts) in 2025, provided they are:
Clear, legible, and complete (front and back if needed)
Stored securely in a digital format (PDF, JPEG, etc.)
Digital receipts do not need to be scanned into MTD software, but best practice is to attach them to the relevant transaction in your accounting or expense management system.
Why it matters: A secure, searchable archive of digital receipts makes HMRC audits and VAT inspections far easier. ExpenseIn automatically attaches digital receipts to transactions, creating a fully compliant audit trail.
VAT on employee expenses: What’s reclaimable in 2025?
The rules on reclaiming VAT on employee expenses haven’t changed in 2025, but HMRC is cracking down on non-compliance.
Key things to remember:
You can reclaim VAT on:
Hotel bills
Client meals (subject to the entertaining rules)
Car hire
Fuel (if not using the fuel scale charge)
Office purchases
You cannot reclaim VAT if:
There is no VAT receipt
You’re reimbursing via a flat rate allowance with no itemised invoice
It’s a client entertainment expense (blocked input tax)
Pro tip: If VAT recovery is important to your business, build policies that require receipts and reimburse actual costs, not allowances.
Why finance teams are turning to ExpenseIn in 2025
As HMRC places greater emphasis on documentation, digital records, and timely VAT compliance, many UK finance teams are turning to automated tools to manage the increasing complexity of expense reporting.
ExpenseIn is one solution being widely adopted in 2025, not just to save time, but to help finance teams ensure consistency, accuracy, and alignment with HMRC’s changing requirements.
Here’s how it’s being used in practice:
1. Automated checks against internal policy
ExpenseIn allows companies to set specific rules for expense submissions, covering things like:
Daily limits
Mileage rates
Receipt requirements
The system flags anything outside of those rules, helping reduce manual oversight and avoid non-compliant claims slipping through.
2. Simple digital capture and storage of receipts
Employees can photograph receipts using the mobile app and submit them instantly.
The images are stored securely and attached to the relevant claim, providing a clear audit trail that meets HMRC’s expectations for digital recordkeeping.
It’s a straightforward way to stay organised, particularly when preparing for VAT returns or compliance reviews.
3. VAT recovery
The platform supports VAT tracking by letting employees enter VAT amounts (or detecting them from scanned receipts). This makes it easier to see what can be reclaimed and to report those amounts accurately.
For finance teams managing quarterly VAT submissions, that clarity helps reduce the risk of errors or missed reclaims.
4. Integration with accounting systems
ExpenseIn integrates with platforms like Xero, Sage, and AccountsIQ.
Once expenses are approved, they flow directly into the accounts, preserving the digital links needed under Making Tax Digital.
This also helps avoid data duplication or transcription errors.
5. Adapting to rule changes
When HMRC updates Advisory Fuel Rates or expense thresholds, keeping your policy up to date in ExpenseIn is simple.
You can quickly adjust the settings to reflect the latest rates, like those published quarterly by HMRC, and the change is automatically applied to all future claims.
That means no chasing employees, no manual reminders, and no risk of outdated calculations slipping through.
6. A practical compliance framework
While no software can guarantee compliance on its own, tools like ExpenseIn provide a strong foundation, helping finance teams build processes that align with HMRC guidance by default.
The result is fewer errors, better recordkeeping, and more time to focus on higher-value tasks.
If you're reviewing how your team handles expenses in light of HMRC's 2025 changes, ExpenseIn is worth considering as part of that process. Book a short demo to see how it could fit with your existing setup.
Key takeaways for 2025 HMRC tax changes
Mileage and allowances largely unchanged: The standard 45p/25p mileage rates remain frozen (unchanged since 2011). No new relief there, so plan budgets accordingly. Company car/van benefit charges edged up slightly for 2025–26, so update those P11D calculations.
Digital records are a must: HMRC continues its Making Tax Digital drive, meaning all expense transactions should be recorded electronically. Digital receipts are fully accepted as long as they’re complete and legible. Ditch paper where possible and use a secure digital system for storing receipts for at least 6 years.
VAT can be reclaimed on business expenses if you have valid VAT invoices. No receipt = no VAT reclaim, generally. Avoid flat per diem payments if you want to recover VAT – it’s better to reimburse actual costs with receipts so your company can claim the VAT back.
Automation simplifies compliance: Using an expense management tool like ExpenseIn helps enforce these rules automatically (correct mileage rates, required receipt attachments, VAT tracking) and keeps you ready for any HMRC inspection. It’s a smart way to stay on top of 2025’s changes without adding workload. Book a demo to see it in action!
FAQs: HMRC tax changes 2025 & business expenses
What HMRC expense rules are changing in 2025?
The main changes include:
Mileage rates remain frozen despite rising inflation.
Slight increases to the taxable benefits for company vans and fuel in 2025-26
A continued push towards digital recordkeeping (as part of Making Tax Digital)
Did HMRC change the mileage rate for 2025?
No, the approved mileage allowance rates are unchanged. Paying above these rates incurs tax.
Are digital receipts acceptable to HMRC, or do I need to keep paper copies?
Digital receipts are perfectly acceptable. HMRC will accept scanned or photographed copies of receipts as long as they are clear and capture all the information from the original.
You do not need to retain the paper version after making a digital copy (for most records).
How can I reclaim VAT on expenses in 2025?
You must have a valid VAT receipt showing the amount, supplier, and VAT number. Flat allowances are not eligible for VAT recovery.
How will Making Tax Digital affect my company’s expense process?
All VAT-related expenses must be digitally recorded in MTD-compatible software. Digital links between expenses and returns are now required.
What is ExpenseIn, and how can it help with HMRC compliance?
For HMRC compliance, ExpenseIn ensures you capture all required info (it prompts for details like dates, categories, mileage, etc.), keeps a secure digital copy of each receipt, and can enforce HMRC rules (for example, it can use the 45p mileage cap or require certain fields for VAT).
It also integrates with accounting systems, helping you maintain those all-important digital links for Making Tax Digital.
Essentially, it’s a tool to automate the heavy lifting of expense tracking and compliance. You can book a demo to see how it works and determine if it fits your organisation’s needs.
Many SMEs find that it pays for itself in time saved and errors avoided, especially as tax compliance demands increase.
Final thoughts: Staying ahead of HMRC tax changes in 2025
While the HMRC tax changes for 2025 may not represent a seismic shift, they signal a continued tightening of standards, particularly around evidence, digital records, and VAT compliance.
For finance teams at UK SMEs, the message is clear: reliable processes and technology are key to staying compliant and avoiding unnecessary risk.
Whether you’re refining your mileage policy, preparing for MTD audits, or improving VAT reclaim accuracy, now is a good time to assess how well your current systems support these goals.
Modern expense software like ExpenseIn are helping finance professionals simplify compliance, reduce admin, and gain better visibility over spending.
If you’re ready to modernise your approach – or just want to see what’s possible – book a demo to explore how it could support your team.
