The Top Ten Tax Mistakes Businesses Make

There are many different types of tax, and the regulations that apply in specific circumstances can be very complicated and are constantly subject to change. This often results in businesses making mistakes when filing their tax returns. While these mistakes are often learning opportunities, they can be a headache and it is always best to file your taxes correctly in the first instance. To help you get it right, the experts at Monetta have listed the most common errors below, along with advice on how to avoid them.

If you have questions about the information below, or you need support in preparing and filing your tax return correctly, or you want to reduce how much tax you pay with tax planning services, contact our expert accountants today. Call Monetta or fill in our enquiry form to request a call back at a time that is convenient for you.

1. Underreporting income

Whether this is done intentionally to avoid paying as much tax as you owe, or unintentionally, because you have not accounted for all of your income or recorded your business transactions properly, underreporting income is illegal and can have serious consequences. It is important to be as accurate as possible when preparing your tax return to avoid any potential problems that might arise later. 

This can be difficult because of the different rules that determine when income is recognised in different circumstances. For example, work in progress that is done but not billed or paid before the end of the financial year should be included, but is often missed. 

To ensure the accuracy of your return, and for advice on saving money on your tax liability, speak to an accountant. They may be able to identify exemptions, reliefs or tax-free allowances that will reduce how much tax you need to pay.

2. Not understanding their tax liability

It is easy to unintentionally overpay tax, and it occurs most commonly because businesses do not understand what expenses are eligible for tax relief or are unaware of thresholds and allowances that reduce how much tax they need to pay. Working with an expert accountant like those at Monetta can help you to avoid this problem. Experienced tax accountants will be able to ensure that every variable is taken into consideration to make sure you only pay the taxes you owe.

3. Failing to plan for taxes

Tax planning is the best way to ensure you do not overpay tax. Planning can provide a realistic estimate of how much you will have to pay and identify any possible reductions, to help make sure you only pay the minimum amount of tax that you need to. Working with a tax expert, you can create an efficient plan that will minimise your liability for the year, but you should do so as early as possible in the tax year to ensure you receive the maximum benefit.

4. Overestimating how much they can claim back

While some businesses underestimate the exemptions and reliefs they are able to claim, others assume they can claim for all necessary expenses. For example, if a self-employed business owner needs to pay for training or qualifications to perform their job, they may think that this qualifies as an allowable expense.

However, this depends on the nature of the course you take and how it relates to your business - if you are acquiring new skills in order to expand your business or start a new one, this will not qualify as an allowable expense, for example. For this reason, it can be difficult to understand what you can claim as an expense and what reliefs apply without expert help.

5. Mixing business and personal transactions together

It can be difficult to separate personal finances from business finances, especially for small business owners or people who are self-employed, and this can make filing your tax return a much slower and more complicated process. You should have separate business and personal bank accounts, and use separate cards to pay for things, to ensure that you can quickly identify business transactions when you file your return.

6. Failing to claim for startup assets

If you have started a new business, any assets you invest in that will retain their value over time (such as equipment) may qualify for an allowance. In fact, you may be able to claim the full cost of this equipment against your profits under the UK’s annual investment allowance programme.

You may also be able to claim tax relief on assets that you owned privately before starting your business, but which you now use for business purposes. Only certain types of equipment qualify, so it is important to check before making your calculations.

7. Missing deadlines

While it sometimes cannot be avoided, there is usually no good reason to miss the tax deadline. You can submit your return as soon as the previous tax year is over without needing to make payments earlier than normal, and there are many benefits to starting early. Preparing your tax return as soon as possible after the tax year closes can give you plenty of time to check the details without the pressure of a looming deadline, and let you plan your finances to ensure you will be able to pay what you owe.

Submitting your tax return or paying your bill late can result in a financial penalty and will accrue interest, so it is best to avoid this if possible.

8. Poor bookkeeping practice

Businesses have a legal responsibility to record every financial transaction they make. This is usually the job of a bookkeeper, although the responsibility might be taken up by any member of staff or even the business owner, especially for small businesses. To meet this legal requirement, businesses should have clear processes in place for maintaining these records, to ensure that they remain up-to-date and accurate. Failing to record this information adequately can make it very difficult to submit an accurate tax return and may result in legal consequences, so businesses should take care to implement good bookkeeping practices.

Digital accounting software can integrate with payment platforms, banks and other financial institutions, and character recognition tools to input a lot of information automatically. A lot of businesses already use these software packages to file their taxes online, but many business owners have not unlocked the full potential of the software that they use. For advice on getting the most from digital bookkeeping software, contact Monetta to discuss your requirements.

9. Maintaining paper records

Recording transactions manually can make it much slower when it comes to filing a tax return. Now that many UK businesses are legally required to submit their returns online under the Making Tax Digital programme, it is much faster and more convenient to use software for your bookkeeping processes.

This requirement will expand to self-employed businesses and landlords in 2024, and is already becoming an industry standard, so businesses should learn how they can benefit from these changes and the use of digital accounting software before it becomes mandatory to use.

10. Not saving for tax payments

This is a particular concern for small businesses and sole traders, but you must make sure that you have enough money saved to pay off your taxes when they are due. Otherwise, there can be dire financial consequences. This is another reason that you should file your tax return early, because this can tell you how much you owe and help you to save enough money to pay your bill when it is due.

If you have encountered any of these problems when preparing or filing tax returns for your business, get in touch with the experts at Monetta for advice and guidance. Call Monetta or fill in our enquiry form to arrange a call back.

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