5 Common Tax Mistakes
Navigating the UK tax system can be a daunting and complex task, especially for individuals and businesses unfamiliar with its intricate rules and regulations.
With constantly changing tax laws, varying requirements based on income, location and circumstances, and the potential for even the smallest mistake being costly, understanding your obligations can feel overwhelming.
Filing taxes accurately often requires a deep knowledge of specific and sector standard deductions, credits, and compliance standards which can be difficult to grasp without expert guidance.
Seeking help from a qualified tax professional, your accountant can provide clarity and reduce stress, ensuring compliance while maximising potential savings. So what are the mistakes most businesses make?
Here we've listed the five most common tax mistakes and how to avoid them:
1. Filing Late Tax Returns
Missing deadlines for self-assessment tax returns, VAT submissions, or corporation tax filings is a frequent issue. Late submissions incur penalties, starting with an immediate £100 fine and increasing the longer the delay continues.
Turpin Tip :
Stay on top of deadlines by setting calendar reminders or using accounting software. For self-assessment, remember that the submission deadline is 31 January for online filings.
2. Mixing Business and Personal Finances
Many self-employed individuals and small business owners make the mistake of mixing personal and business expenses. HMRC prohibits claiming personal expenses as business deductions, leading to rejected claims or potential audits.
Turpin Tip:
Open a separate business bank account and clearly document all business-related expenses. This ensures transparency and compliance.
3. Forgetting to Claim Eligible Allowances and Reliefs
Taxpayers often overlook valuable allowances, such as:
Marriage Allowance: Allows couples to transfer up to £1,260 of unused personal allowance.
Childcare Tax Credits: Relief for registered childcare costs.
Research and Development (R&D) Relief: Significant for businesses innovating in their industries.
Turpin Tip:
Consult a tax advisor to identify and claim all applicable allowances, especially for complex claims like R&D tax credits.
4. Errors in VAT Registration and Returns
VAT mistakes include failing to register on time when turnover exceeds £85,000, applying incorrect VAT rates, or miscalculating VAT in returns.
Turpin Tip:
Monitor your business revenue carefully. If nearing the VAT threshold, seek professional advice on the appropriate VAT scheme for your business. Use software that integrates VAT calculations to reduce errors.
5. Poor Record-Keeping
Lack of accurate records can lead to missed deductions or trouble during HMRC audits. Taxpayers must keep proof of income, expenses, and deductions for at least five years after the tax year ends.
Turpin Tip:
Adopt a digital record-keeping system, such as cloud-based accounting software like QuickBooks or Xero. Regularly reconcile transactions and categorise expenses for ease of reporting.
By avoiding these mistakes and staying proactive, you can minimise tax liabilities, prevent penalties, and maximise your financial efficiency. Not sure where to start or want to review your finances? Book a coffee consult where you can get 30 minutes of free tax advice on what to do next!
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