Whether it’s working out how much to pay to HMRC, calculating your VAT liabilities or identifying what tax relief can be claimed on your business expenses, it’s a complicated issue fraught with pitfalls.Misunderstanding tax can also be damaging for your business, as you could potentially hinder your cash flow by paying more tax than you should, or face penalties from HMRC for not paying all of the tax that you need to. So how can you stay on top of your small business tax and make sure you keep on the right side of the taxman? Here are five common tax traps to watch out for. 1) Claiming too much for food and drink It’s tempting to claim in your accounts the cost of any food and drink you buy when you’re working, but HMRC takes a much sterner line than that. HMRC says that, because everyone must eat in order to live, food and drink by its nature is partly a personal cost and will only allow you to claim the cost of food and drink in certain circumstances. If your business is a limited company, you can claim the cost of food and drink when you’re out and about on business. For sole traders, the rules are stricter. As a sole trader, you can only claim the cost of food and drink when you’re out and about if either:
- you’re away overnight
- the journey is outside your normal pattern of business, or
- your business is itinerant by nature so that you spend short periods of time at lots of different client sites.
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