Owning your own business is a rewarding experience. However, as many entrepreneurs learn, it also means putting a great deal of work into getting things right – from marketing to consumers, to keeping up with the books.

Often, young businesses place the majority of their focus on the concepts of sales and customer acquisition, meaning that taxes can take a backseat. Unfortunately, if you fail to start thinking about your tax needs until your company has already begun to earn revenue, or tax season falls on top of you, your business may already been in trouble.

Following, we will cover some of the most common mistakes that businesses make when it comes to filing and paying their taxes.

By recognising the areas you’re most likely to struggle, you may be able to avoid tax trouble in the future, and even save money for your business through the use of appropriate deductions.

1.   Failure to File Correct Forms or Send Proper Payments

Depending on the legal foundations of your business, your use of employees, and the type of industry you’re working in, you will be required to send a number of different forms to HRMC.

Some of these forms will need to be filed on a quarterly basis – such as estimated income tax, payroll taxes, and sales tax. On the other hand, some must be submitted annually, while others should be sent directly to workers and employers throughout the year to ensure that they can pay their own taxes.

There are plenty of solutions in the form of accounting and payroll software that may be used to help remind you which payments and forms are required for your business, and if you use an accountant, this professional could offer email reminders to let you know what is due, when.

2.   Poor Record Keeping Practices

Record keeping defines one of the most crucial aspects of running a business – no matter the size or industry.

With good records, you should be able to deduct business-related expenses easily, manage and track the usage of inventory, maintain employee payroll information, and reduce the potential for significant legal errors.

Keeping good records for tax purposes is all about being as organised as possible. In other words, it’s not enough to simply rely on your memory – instead you need to keep all of the receipts you obtain for every expense, and ensure they are stored, in order, in a secure place.

Receipts should include everything from office supplies, to business rent, employee payrolls, and advertising. Companies can manage their records physically, through the use of paper and filing cabinets, or through online software designed to automate record keeping.

3.   Failure to Access the Right Tax Help

Once your business has been established, or even before you’ve begun taking on clients, it can be helpful to seek out a tax advisor that can offer you guidance as to whether you’re following the correct regulations.

Many people prefer to use an accountant rather than managing their taxes solo, as running a business requires a great deal of energy that could be used on creating products, forming business relationships, and developing marketing strategies while an accountant handles the books.

Make sure, however, that you don’t use any accountant who suggests that you should take write-offs that you are sure you are not entitled to, or recommends hiding certain parts of your income.

This is a significant sign that the person you’re dealing with is shady, and if the law catches them out, you’ll end up under audit.

4.   Inability to Properly Classify Workers

As a business evolves and grows, it can be difficult to determine whether an employee is part-time, freelance, or full-time – particularly if they are working on a remote basis.

Every time you hire an employee, it’s important to classify their status, and designation within your company. Failure to do this can lead to significant fines with tax officials, and you may end up in legal trouble.

One simple way to determine whether an employee is a contractor, or not, is to assess the amount of control you have over their work. If you set specific hours for them, give them the equipment they need to work, and pay for their office space, they are likely an employee.

On the other hand, if the individual in question controls their own schedule, and uses their own equipment, they may be a contractor. For further guidance, speak to your accountant or a payroll expert when you are thinking of taking on new staff.

5.   Taking Incorrect Business Deductions

A great way to reduce your tax burden is to take a number of legal business deductions. According to the government, companies have the right to deduct any necessary expenses incurred while operating the business.

For instance, if you work from home, then you may be able to deduct a number of expenses, including insurance, rent, utilities, office supplies, and taxes.

On the other hand, if you use your car frequently for work, you may be able to deduct gas expenses, parking charges, and insurance premiums.

Keep in mind, however, that taking excessive deductions, or accidentally mixing personal and business expenses is not allowed, and could lead to an audit, or even a federal tax fraud charge. It’s important to be careful when you are deciding which expenses to deduct, and to ask your accountant or attorney if you are feeling unsure about what may be possible.

6.   Mixing Personal and Business Expenses

If you’re new to the world of running your own business, it can be very easy to get things mixed up. Unfortunately, the HRMC is very strict when it comes to the rules applied for comingling funds.

Only expenses that are directly related to your business can be deducted from your income for the purpose of tax payments, and the only way to ensure that you don’t make a mistake is to ensure that your finances are kept separate.

Most experts recommend using a specific business bank account for your company expenses, and another account for your personal expenses.

That way, you can use your business card when making purchases associated with your company, and your personal card when buying things that are for you.

Keep in mind that travel expenses are a particularly complex topic with the HRMC, as they may argue that travel to and from your home may not always be deductible.

7.   Waiting Until Last Minute to Organise Information

Too many companies and budding businesses wait until tax season arrives to start sifting through a bag of crumpled receipts, bank statements, and credit card statements in order to make sense of how much they’ve earned during the year.

Although it may seem like a time-consuming hassle to dedicate time to organizing your finances constantly, it will save you time and effort in the long run, and can ensure that you can claim all the deductions you deserve.

Make sure that you collect every receipt and store it properly so that you can refer to it at a later date, and don’t neglect to take an extra five or ten minutes at the end of the day to write an entry into your tax organizer about the money you’ve spent and received over the last twenty-four hours. Some accountants will even charge you less if you have been organised with your information throughout the year.

8.   Missing Out Crucial Information

It may seem simple, but a lot of people fail to sign or date their tax returns. If you are filing your tax return through paper documentation, make sure that you include the date and your signature before sending it in.

At the same time, regardless of whether you’re filing online or in paper, make sure that your unique taxpayer reference number (UTR) and National Insurance number are both correct.

Depending on the additional income that you may receive that is not covered by your primary tax return, it may be necessary to include supplementary pages within your documents. For instance, additional relevant information may include:

  • Data about life insurance gains
  • Post cessation receipts
  • Particular employee deductions
  • Income from share schemes
  • Non-qualifying distributions or stock dividends
  • Income from property
  • Loss relief claims

The Bottom Line on Business Tax Mistakes

At the end of the day, the best thing you can do to avoid problems regarding tax for your business, is to stay organised and honest.

As in many aspects of life, you’re unlikely to face trouble if you keep track of what’s going on in your business, and inform the relevant authorities whenever necessary information arises.

Often, because new business owners can find the concept of tax confusing, it is best to access the help of a professional to make sure that you include all of the relevant information required in your tax return, and gain access to any deductions which may lower the amount you have to pay.

However, keep in mind that when using a professional, you will still be responsible for managing and keeping your records.