5 Common Tax Mistakes Small Businesses Make (and How to Avoid Them)
Navigating the world of business tax can be a challenge, especially for small business owners. Simple errors can lead to penalties from HMRC, missed savings, and unnecessary stress. Here are five common mistakes to watch out for.
1. Mixing Business and Personal Expenses
This is one of the most frequent errors. Using a personal bank account for business transactions makes it incredibly difficult to track expenses accurately. It complicates bookkeeping and you risk missing out on claiming legitimate business expenses.
Solution: Open a separate business bank account from day one. Use it exclusively for all business-related income and expenditures.
2. Poor Record-Keeping
Failing to keep organised, detailed records of all your sales and expenses is a recipe for disaster. Without proper documentation (invoices, receipts, bank statements), you cannot accurately calculate your profit or prove your expenses if HMRC investigates.
Solution: Use accounting software (like Xero, QuickBooks, or FreeAgent) to digitise and organise your records. Keep everything for at least six years.
3. Missing Important Deadlines
HMRC has strict deadlines for filing returns and paying tax liabilities. Missing them results in automatic penalties, which increase over time.
- Self-Assessment: Midnight, 31st January.
- VAT Returns: Usually 1 month and 7 days after the end of a VAT period.
- Corporation Tax: Payment is due 9 months and 1 day after your company's accounting period ends.
4. Not Claiming All Allowable Expenses
Many businesses pay more tax than necessary because they don't claim all the expenses they are entitled to. This can include anything from office supplies and software subscriptions to a portion of your home utility bills if you work from home.
Solution: Familiarise yourself with what constitutes an "allowable expense" or work with an accountant who can identify all potential deductions for you.
5. Ignoring VAT Thresholds
You must register for VAT if your VAT-taxable turnover exceeds the government threshold in a 12-month period. Failing to register on time can lead to significant back-payments and penalties.
Solution: Monitor your turnover regularly. Plan ahead so you can register and prepare your systems for charging and reporting VAT as you approach the threshold.
Don't Let Tax Mistakes Hold You Back
Tax compliance is critical to the health of your business. By avoiding these common mistakes, you can ensure you operate efficiently and legally. If you're unsure about any aspect of your business tax, our team is here to help.