Every January, the same conversations happen in contractor forums and Slack groups. Someone's tax bill is bigger than they expected. Someone got a letter from HMRC querying an expense. Someone didn't know payments on account were a thing until they tried to pay £4,000 in January and discovered they actually owed £6,000.
These aren't rare edge cases. They're the same mistakes, repeated every year, by people who are otherwise pretty switched on. I've been deep in UK contractor tax for a while now — building the calculators on this site, reading HMRC guidance obsessively, talking to people about what they get wrong — and the same errors come up repeatedly.
Here they are, with actual numbers, in order of how much they cost people.
1. Claiming client entertainment as an expense
Business entertainment is explicitly excluded. Client dinners, drinks at networking events, working lunches where you pick up the bill for the other person — all of it is non-deductible, regardless of how genuine the business purpose was. HMRC's position is not subtle on this one, and it is one of the first things a compliance check looks at if your expense ratio looks off.
The confusion usually comes from mixing this up with subsistence. Subsistence covers your own meals when you are travelling for work — a sandwich on a site visit, a hotel breakfast on an overnight job. It does not cover taking a client out. If you paid for both of you, the client's portion is entertainment and comes out. If you paid for a round at a meetup because you were "networking", that is entertainment too. The business purpose does not rescue it.
HMRC enquiries are relatively rare for small contractors. That is not a strategy. If you are investigated, entertainment claims will be disallowed, and interest is charged on the extra tax. Take the dinners off the books before they become a problem.
2. Not keeping a mileage log
The approved mileage rate for 2026/27 is 55p per mile for the first 10,000 business miles, then 25p after that. That is real money. Eight thousand business miles in a year is a £4,400 expense claim. At the basic rate that is £880 of tax saved. At the higher rate it is £1,760. Plenty of contractors drive that much between clients and never claim it because they never logged the journeys.
HMRC expects a contemporaneous log: date, start point, destination, business purpose, and distance for each journey. A reconstructed log at year-end is obvious. The mileages are too round, the pattern is too consistent, the descriptions are identical. "Client meeting" written 200 times does not look like a real year of work. Log each journey when it happens — thirty seconds, a mileage tracking app, done. The people who skip this are leaving four figures on the table for the sake of a habit they never built.
See exactly what your mileage claims are worth at the new 55p rate.
Open mileage calculator →3. The payments on account shock — not budgeting for January properly
This is the one that produces the January Slack messages. Payments on account mean your January payment is not just the tax you owe for the year that has finished. It is that bill, plus a 50% advance toward next year. If your first Self Assessment bill is £8,000, January is £12,000 — the £8,000 you actually owe, plus a £4,000 first payment on account. Another £4,000 follows in July.
You can be fully prepared for an £8,000 bill, have the money sitting there, and still get a shock when the payment screen says £12,000. The feeling is specific: you thought you had done the grown-up thing, and the system still blindsided you. The fix is to budget for a bill-and-a-half from the start. For most sole traders that means setting aside 25–30% of gross income as you go, not the lower percentage that would cover only this year's tax.
Payments on account only apply if your Self Assessment tax bill — excluding Class 4 National Insurance — exceeds £1,000. Below that, you pay the bill and stop. Most people earning meaningfully above the personal allowance will cross the threshold, so assume the mechanism applies unless you have already checked that it does not.
4. Using the wrong accounting method and not knowing it
Sole traders can use cash basis or traditional (accruals) accounting. Cash basis means you count income when it hits the bank and expenses when you pay them. Accruals means you count invoices when you raise them and bills when you incur them, whether or not the money has moved. Neither is automatically wrong. Mixing them is.
The usual mistake is not picking the "wrong" method. It is recording income on a cash basis and expenses on an accruals basis, or the other way around, so the profit figure is a mash of two systems. Accounting software handles this if you set the method once and leave it alone. Spreadsheet users have to be consistent by hand. If you are not sure which method you are on, look at a previous return or ask your accountant before you start reconstructing this year's numbers. Switching methods mid-year without knowing you have done it is how people file a return they cannot later explain.
5. Not claiming the home office allowance
HMRC's simplified expenses for working from home are almost embarrassingly easy, and a lot of people still skip them. Work 25–50 hours a month from home and you can claim £10 a month. Fifty-one to 100 hours is £18 a month. A hundred and one hours or more is £26 a month. A full-time home worker can claim £312 a year without keeping a single utility receipt.
There is an actual-cost method if you want a higher claim — a reasonable proportion of rent, mortgage interest, heat, light, broadband. It needs records, and using a room exclusively for business can have Capital Gains Tax implications when you sell the house. Most contractors find the flat rate easier and less risky. £312 is not life-changing, but it is £312 you are currently donating to HMRC for no reason.
6. Missing the difference between allowable and non-allowable training costs
Training is allowable when it maintains or improves skills you already use in your existing trade. It is not allowable when it enables a new trade. A developer taking a course on a new framework because current contracts require it: allowable. A developer pivoting into data science with a full conversion programme: not allowable. Same person, same invoice from a training company, different tax treatment depending on what the skill is for.
The line is fuzzy and HMRC knows it. You will not get a clean ruling in advance for every course. The principle is still clear enough to use: if the training makes you better at the work you already do, claim it. If it is how you become something else, do not. When it is genuinely borderline, that is a conversation with an accountant, not a guess on the return.
The one that underpins all of these
The root cause is the same. People learn this stuff reactively, at filing time, when it is already too late to keep a mileage log, too late to budget for payments on account, and too late to stop putting client dinners through the books. The fix is front-loading. Spend a couple of hours at the start of each tax year working out what has changed, what you can claim, and what the deadlines are. Estimate the bill early. Keep records as you go. January then becomes a payment, not a panic.
Estimate your tax bill now — before January surprises you.
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