Small businesses and sole traders often face numerous challenges, and tax compliance can be one of the most daunting. Unfortunately, many business owners make common tax mistakes that can lead to significant financial penalties. These are some of the more common (and the things you can do to avoid them).
Incorrect Record-Keeping:
Poor organisation and a lack of organized financial records can make it difficult to accurately calculate income and expenses. Failing to keep receipts for business expenses can lead to disallowed deductions, while errors in recording transactions can result in incorrect tax filings.
Tip: It’s pretty simple: maintain meticulous records, including invoices, receipts, bank statements, and expense logs. Use accounting software to streamline the process and ensure accuracy.
Late Filing and Payment:
Failing to file tax returns or make tax payments on time can result in penalties and interest. That often comes from underestimating the time required to prepare and file tax returns can lead to rushed and inaccurate submissions.
Tip: Set reminders for tax deadlines and allocate sufficient time for tax preparation. Consider using tax software to automate certain tasks and reduce the risk of errors.
Claiming Non-Deductible Expenses:
Personal Expenses: Claiming personal expenses as business deductions is a common mistake, while overclaiming entertainment expenses can lead to scrutiny from HMRC.
Tip: Carefully review expense claims to ensure they are directly related to business activities. Keep detailed records and receipts to support your claims.
Ignoring VAT Thresholds:
Failing to register for VAT when the threshold is reached can result in penalties and errors in VAT calculations can lead to overpayment or underpayment of tax.
Tip: Monitor your business turnover closely and register for VAT as soon as you reach the threshold. Use VAT software to accurately calculate and record VAT transactions.
Not Claiming All Entitlements:
Failing to claim available tax reliefs, such as R&D tax credits or capital allowances, can cost your business money, while miscalculating the tax implications of company cars or other benefits can lead to underpayment of tax.
Tip: Stay informed about the latest tax reliefs and incentives available to small businesses. Check with us to ensure you’re claiming all eligible deductions.
Ignoring Changes in Tax Legislation:
Relying on outdated tax information can lead to non-compliance, while, on the other hand, failing to take advantage of new tax breaks or incentives can impact your bottom line.
Tip: Stay up-to-date with the latest tax legislation and changes. Consider subscribing to tax newsletters or consulting with a tax professional.
The best way to avoid these common tax mistakes, is to work with a team who knows what you need and who understand the deadlines, the processes and the legislation, so that you don’t have to. It will save on missed payments, overpayments and tax benefits and relief. So get in touch, and let’s work out how we can help.
