5 common pitfalls when claiming tax back from expenses in the UK

For everyone, claiming tax back from expenses can be a careless procedure where errors can cost money, especially for small and medium businesses. This article demonstrates the five most common errors regarding tax rebates that can save individuals & businesses from undesired penalties.

When it comes to calculating how much tax you should pay, or even addressing VAT liabilities or studying what tax relief can be claimed it is a tricky procedure. Possible mistakes while filling up the form could cost money or on the contrary, permit the HMRC impose a penalty. In this article we will explore 5 common tax traps you should be aware of when claiming tax returns.

1. Claiming too much on food & drink

If you own a limited company in the UK you have the right to claim the cost of food and drinks spent out on business trips and daily expenses, however sole traders must adhere to stricter rules. A Sole Trader may only claim the cost of food and drink when you are away overnight, when your journey is outside your normal pattern of business, or if you work errantly spending short periods of time at various client locations.

2. VAT spent on entertainment

The HMRC seldom accepts customers and other contacts’ entertainment as a necessary part within the business, meaning that it’s most likely that you will be refused to claim VAT on the entertainment expenses. You are only allowed to claim VAT on the entertainment spent for your employees, otherwise you are risking getting a penalty.

Entertaining customers and other business contacts is part of business life, but HMRC rarely accept it as a necessary part. That means you can't claim VAT on the cost of entertaining anyone other than bona fide current employees in your business. Don’t make the mistake of treating individuals, such as subcontractors, as employees and claiming VAT on the cost of entertaining them too.

3. Claiming too much for a home business

Rules are quite strict for Directors of Limited Company and other employees regarding home-running costs you wish to claim back, without paying extra tax. You may not claim back any section of fixed costs that you would be required to pay anyway, whether or not you have worked at home (i.e. rent or council tax). You also can’t claim any expenses if the work you carry out at home isn’t an acitivity that supplies income to your employer. You won’t be able to claim costs if you’re completing administrative tasks at home, unless you are an administrator. Finally, you can’t claim any expenses if your employer provides alternative workplace facilities elsewhere but you reject to use them and work at home instead. The rules for sole traders are even more rigorous.

4. Calculating income at the wrong time

The following is a common pitfall: If you’re using the cash basis of accounting, you should include your income in your report when your customer has already paid you for it. If you do the opposite you are simply lose money for your wrongdoing.

5. Claiming travel expenditure when riding a bicycle

If you’re an employee or a company director, you can reclaim mileage you travel on business on your own bicycle, at a rate of 20p/mile, from your employer, without the necessity to pay extra tax on the reimbursement.

However, you should note that if you are self-employed, you’re no longer able to reclaim mileage travelled on a bicycle, since the specific legislation was updated the 6th of April 2013, and you can now only reclaim mileage travelled in a car or on a motorbike.


Tax is indeed an incredibly challenging issue for someone to deal with, so it’s important to do your research and get a full understanding of your tax rights and liabilities before submitting your claim. If there’s something you are not so certain about, it’s a good idea to seek the assistance of a professional accountant who can help you and your business save on tax expenditure whilst avoiding falling into the sticky mess of tax fraud.

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