Running a small business is a complex task that requires a meticulous approach to financial management, particularly when it comes to tax obligations. At Godfrey Mansell Accountants, based in Halesowen and serving the surrounding areas of Bromsgrove, Worcestershire and beyond, we understand the potential pitfalls small businesses face regarding taxation. Here, we outline ten common tax mistakes that small businesses may make and provide guidance on how to avoid them.
Registering Too Late for Tax
One of the most common mistakes made by small businesses is registering for tax too late. Failing to notify HM Revenue and Customs (HMRC) of your self-employment status can result in an automatic penalty and additional charges. Ensure you register as soon as you start trading. Keeping abreast of HMRC guidelines and deadlines can save you from avoidable complications later. Consider seeking assistance from a tax advisor to ensure timely compliance.
Missing the Tax Deadline
Not meeting tax deadlines for submissions can incur late penalty fines and interest on the tax due. The stress of late submissions can affect your overall business operations. Consider creating a calendar marking all relevant tax deadlines and commit to a routine of preparing your filings well in advance. Utilising software solutions and setting up reminders can significantly enhance your chances of timely submission.
Incomplete Tax Returns
An incomplete tax return can lead to further inquiries from HMRC and, potentially, more serious implications. Missing information often results in inaccurate tax assessments. Take the time to carefully review your tax return before submission. Maintain organised records of all financial transactions and ensure you understand the requirements pertinent to your business type. Consulting and engaging with an accountant to verify your return can mitigate such risks.
Errors Contained Within Tax Returns
Filing tax returns with errors, whether they arise from inaccuracies and/or lacks reasonable care, can lead to financial penalties. Accurate record keeping is is the backbone of error-free tax returns. Double-check all figures and information on your return before submission., including tax calculation. Additionally, consider enlisting the services of a qualified accountant who can offer expertise and accuracy in your return preparation.
Disorganised Record Keeping
Poor record-keeping can complicate tax calculations and increase the likelihood of errors in tax returns. It can also obscure your business’s financial health, making it difficult to produce reliable financial statements. Invest in a robust record-keeping system that enables you to easily track income and expenses. Regularly update your records and designate a specific time each week or month for this task. A digital accounting system can streamline this process significantly, keeping everything organised and easily accessible.
Missing Out on Tax Allowances
Many small businesses overlook valuable tax allowances that could reduce taxable income, leading to higher tax liabilities than necessary. Not claiming eligible deductions can be costly. Familiarise yourself with the allowances available for your type of business, such as the Annual Investment Allowance for purchasing assets such as machinery, equipment and certain types of vehicles. Consulting and engaging with a tax professional can help identify opportunities for legitimate claims.
Failing to Plan for Tax Liabilities
A common issue for small businesses is not planning for their tax liabilities throughout the financial year. This can lead to cash flow issues and unpreparedness when tax bills fall due. Set aside a portion of your turnover regularly to cover anticipated tax liabilities. Develop a cash flow forecast that takes tax payments into account, allowing you to manage your finances more effectively. Seek advice from an accountant to create a tax planning strategy tailored to your business.
Mixing Personal and Business Expenses
Mixing personal and business expenses can create complications when filing tax returns and may lead to disputes with HMRC over what constitutes a legitimate business expense. We suggest opening a separate bank account for business transactions and use this account exclusively for all business-related income and expenses. This clear delineation makes record-keeping easier and provides a straightforward approach during tax time.
Not Reporting Capital Gains
Capital gains can arise not only from the sale of business assets but when you make a profit when you sell or dispose of a property that is not your home, such as a buy to let property. There are reporting and payment deadlines that effect capital gains on the sale of UK property in such instances. Ensure you keep meticulous records of all asset transactions and ensure you understand the requirement to report capital gains. An accountant can assist you in ensuring all aspects of your business, including asset sales, remain compliant.
Implications of Making Tax Digital
The shift towards Making Tax Digital (MTD) means that businesses are required to keep digital records and file tax returns using approved software. For businesses unprepared for this transition, it can present a significant challenge. Familiarise yourself with MTD requirements as soon as possible. Invest in digital accounting software that complies with HMRC’s standards. Seek professional assistance to ensure a smooth transition for MTD compliance.
In conclusion, while navigating the tax landscape can be daunting for small businesses, awareness of these common tax mistakes—and taking proactive steps to avoid them—can lead to greater financial health and stability. At Godfrey Mansell Accountants, we are committed to helping businesses of all sizes in Birmingham, Worcestershire and Nationwide to avoid these pitfalls. Our experienced team stands ready to provide personalised accounting and tax advisory services tailored to your unique needs. If you have further questions or require assistance, then contact us today.
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