Top ten common small business tax mistakes (and how to avoid making them!)

For small businesses, tax can be a daunting subject. There is a lot of responsibility and mistakes can be costly. However, we are here to help and guide you through the tax process. Here is a list of the top ten errors we see (and how to avoid them!):

Keeping up-to-date accurate records can be challenging when you’re busy, and satisfying your customers (or tackling a more appealing business task!) understandably takes priority. But if all your incoming and outgoing expenditures aren’t recorded then unpicking all those details ready for filing can be a much more challenging job and could lead to disputes with HMRC. There are no set rules on how to keep records but they must be accurate, complete and legible. Lots of accounting software packages are available to make record keeping more manageable, or do contact an accounting professional if more help is needed. 

The most common reason for businesses to fail is by running out of cash. Be sure to invoice customers promptly as you’ll be more likely to receive payments in a timely fashion, thus allowing you to settle your own liabilities before incurring late fees. A cash flow forecast can help you to plan ahead, helping your business be successful and allowing you to budget for necessary expenses, such as your tax bill…

…following on from point 2, if possible, set aside a budget regularly (monthly, or as a proportion of all incomings) to ensure you have the funds to pay HMRC when needed. For a limited company, full ‘statutory’ annual accounts and a Company Tax Return must be prepared at the end of the company’s financial year (deadlines are 9 months after the company’s financial year for annual accounts to Companies House and 12 months after the accounting period for Corporation Tax ends for filing the Company Tax return). Corporation Tax is due to be paid 9 months and 1 day after your accounting period for Corporation Tax ends. Be aware of the dates and deadlines for your company and budget accordingly!

Digital banking such as card payments and bank transfers can be valuable for record keeping, recording the date, amount and recipient for every transaction. Cash doesn’t have this advantage and so the information needs to be manually recorded – an easy place to make mistakes, particularly for allowable expenses. 

Double check everything! Or use software with built-in validation. Discrepancies in your figures and miscalculations can cause errors in your tax return.

You can file your accounts and tax return with Companies House and HMRC together or separately. It’s brilliant to be organised and prompt with your tax return as there are penalties for filing late, but make sure that all the necessary information has been received and included before you do submit. Missing interest statements or invoices can lead to incomplete filings.

Pension contributions can usually be taken from your taxable income, up to certain limits, so it is in your benefit to declare any payments into a workplace or personal pension. As a company director of a limited company, you can contribute to your director’s pension both via employer contributions and as an individual. It is possible to claim pension tax relief on both, although for personal pension contributions the amount you can pay in for tax relief purposes is limited to 100% of earnings, up to a maximum of £60,000.

Be wary of any personal expenses creeping into your tax return. Recording these as business expenses can lead to audits and fines, so ensure that all expenses are correctly categorised. More information about allowable expenses can be found on the government website.

There are some key tax deductions which can reduce your outgoings and help your business to grow. Don’t miss out on allowances and reliefs – take a look at our article ‘Top tax breaks for small businesses’ to see where you could be saving money.

If you are still concerned about making a costly error with your tax, we are ready and able to help at Palm Accountancy. We can ensure that errors are checked for, eligible expenses are claimed and you are compliant with all the HMRC regulations, alleviating the worry and potentially saving you money on your tax bill, so do contact us for advice and support.