Mistakes Small Business Owners Make When Filing Taxes

by Vidit Agarwal Marketing Director

Preparing a company’s taxes is probably the most challenging task while operating a small business. You can lose out on money in many ways: improperly classifying your staff, improperly calculating the start-up cost, etc. Hiring an expert to ensure 100% financial accuracy and maximise your tax savings.

What are some common tax filing mistakes?

Faulty income reporting: HMRC is closely monitoring every possible transaction. It can be a barter transaction where you exchange goods and services or make payment via virtual currency. If you have sold an inventory item, you must factor in this cost to avoid paying double taxes on gross sales. So, you must report the correct taxable income to avoid any penalties.

Mixing up business and personal finances: It is too easy to overlook a business transaction or treat personal income as business revenue. Keeping separate business accounts and credit cards will reduce the chances of any confusion.

Overlooking pre-opening expenses: In the first year of your business, you can deduce the cost incurred before opening the doors. This can be very beneficial if you have an asset-heavy start-up.

Not using retirement plans: Contributions made to qualified plans can reduce your tax bill while saving for the future. There are many plan choices available to you. On starting a plan, you may even qualify for a tax credit.

Fudging worker employment status: The HMRC is on the lookout for this mistake, and if they find out that you have deliberately labelled employees as independent contractors, you will have to face heavy penalties.

What is the penalty for making tax mistakes?

Missing the deadline to file a self-assessment tax return can cost you £100. If you further delay your tax filing, the potential fines keep getting worse. If you make a mistake on your tax return, you will be penalised based on whether HMRC thinks you were just careless or you have tried to lie about your earnings. Being careless can cost you up to 30% of the extra tax owing, but if HMRC finds out that the mistake was made on purpose, you could even be penalised 100% of the extra. Thus, it is recommended to hire self-employed Accountants to avoid penalties and extra charges.

How will owning a small business affect my taxes?

Suppose you are the only owner of your small business. In that case, you automatically become a sole proprietor, and the profits you earn from the business are added to other incomes like interests and dividends on your tax return. Thus, if your business is facing losses, you can report it on your tax return and get relaxation on the net taxable income.

Do I need accountants in Nottingham?

Calculating and filing taxes is a very complex task that requires expert attention. Not using professional assistance can exponentially increase the risk of making a mistake. Also, hiring full-time accountants in Nottingham means you will now have more time to take care of client satisfaction and quality improvements.