As a small business owner, your plate is undoubtedly full, managing various tasks from marketing and recruitment to customer service and daily operations. Amidst these demands, ensuring your tax matters are in order is a crucial responsibility. Making errors while filing taxes can lead to missed opportunities for tax deductions or unexpected tax liabilities.
In 2022/23, UK government raised around £1,029 billion (£1 trillion) in receipts – income from taxes and other sources.
For businesses seeking expert financial guidance and professional accounting services, Accountants in London, including Certified Accountants, offer comprehensive solutions tailored to your needs. From Accountants Preston to Accountants in Romford, and Accounting Firms in Liverpool Street, our network extends across various locations, including Accountants Middlesbrough, Accountants Canary Wharf, and Accountants In Ilford.
However, the silver lining is that many common tax mistakes made by business owners are entirely avoidable! By understanding and leveraging tax deductions for business owners, you can optimize your tax situation and minimize financial strain.
Tax Deductions Mistakes to Avoid When Starting a New Business
While tax filing and payments are vital aspects of managing your business, attempting to handle these tasks alone can often result in common tax mistakes, potentially causing you to overlook deductions that could significantly reduce your tax payments.
Whether you’re a seasoned entrepreneur or just starting out, the ever-evolving landscape of tax regulations can leave you feeling uncertain about handling your taxes independently. Filing business taxes is undeniably complex, which is why it’s advisable to engage the services of a Certified Public Accountant (CPA) who can expertly prepare and file your taxes on your behalf.
By working with a CPA, you can ensure that you take full advantage of available tax deductions for business owners while navigating the intricacies of tax regulations with confidence.
Financial Mistakes to Avoid When Starting a New Business
1. Not Selecting the Proper Entity
Choosing the right tax entity for your company is crucial. Many small businesses opt for structures like sole proprietorships or limited liability companies (LLCs), but these may not always be the most tax-efficient options. Factors such as your desired business structure, number of employees, and financial objectives should be considered when making this decision. Common business entities in the UK include:
- – Limited Liability Company (LLC)
- – Limited Company (Ltd)
- – Partnership
- – Sole Trader
- – Community Interest Company (CIC)
If you’re uncertain about which business entity suits your needs best, consulting with an accountant can provide valuable insights. Selecting the wrong tax entity for your company is a prevalent tax mistake that can significantly impact your business’s future. For example, forming your company as a limited company might increase your tax liability. It’s essential to understand the advantages and drawbacks of each entity type when setting up your business in the UK.
2. Deducting Start-Up Costs Incorrection
Incorrectly deducting start-up costs is a common tax mistake that small business owners make. While start-up costs are deductible, not all expenses qualify. Expenses are typically categorized as either start-up costs or organizational costs.
Start-up costs include expenses incurred while researching or setting up the business, such as market research or legal fees. Organizational costs, on the other hand, are associated with forming the company, such as registration fees or legal expenses.
In the UK, business owners can deduct £5,000 of start-up costs and £5,000 of organizational costs in the year their business begins operating if their total start-up costs are less than £50,000. If start-up costs exceed £50,000 but are less than £55,000, the deduction is reduced accordingly. Start-up costs exceeding £55,000 cannot be deducted in the first year and must be amortized over subsequent years.
3. Commonly Missed Deductions
Seeking the assistance of a certified accountant can help you identify and claim all eligible deductions. Commonly overlooked deductions for UK businesses include:
- Home office expenses (subject to HMRC guidelines)
- Accounting and bookkeeping fees or software costs
- Tax preparation expenses
- Business use of vehicles (e.g., delivery vehicles or non-commuting travel)
- Insurance premiums, including health insurance for yourself and employees
- Travel expenses
- Meals (e.g., client entertainment or employee lunches) – subject to specific HMRC guidelines
4. Over-Reporting, Under-Reporting, or Misreporting Income
Over-reporting or under-reporting income can lead to tax compliance issues. It’s crucial to accurately report your business’s income to HM Revenue & Customs (HMRC). Additionally, misreporting sales tax or failing to include income from the sale of business assets can result in tax penalties and interest charges.
5. Incorrectly Classifying Staff
Misclassifying workers as employees or independent contractors can have serious tax implications. Understanding HMRC’s guidelines for employment status is essential to ensure compliance. Penalties for misclassification can be severe, so it’s vital to classify workers correctly.
6. Not Paying on Time or Failing to File on Time
Failure to pay taxes on time or submit tax returns by the deadline can result in penalties from HMRC. It’s advisable to pay taxes promptly to avoid late fees and interest charges. Sole proprietors, partners, and directors of limited companies should also consider making quarterly payments if their tax liability exceeds £1,000 at the end of the tax year.
Partnering with a UK-based accountant or accounting firm can help you navigate tax matters effectively, ensuring compliance with HMRC regulations and optimizing your tax strategy for your business’s success.
Whether you’re a small business in need of Practical Accounting Training or seeking dedicated support from Accounting Firms for Small Business, our team ensures top-notch service delivery. Trust us to connect you with the top accounting firms in London, providing unparalleled expertise and support for your financial success.
Bottomline
Many small business owners seek the expertise of a Certified Public Accountant (CPA), especially during the initial years of tax filing, to steer clear of common tax deductions errors and gain familiarity with the process. SKZEE has been a trusted partner for small businesses, providing invaluable assistance with tax returns and accounting requirements.