HMRC released statistics revealing over 800,000 small and medium sized businesses (SMEs) failed to submit their tax return online by the 31st January deadline in 2015. This figure is rather startling. In the absence of a ‘reasonable excuse’ taxpayers failing to submit their tax return on time are charged a £100 late fee.

Clearly this 800,000 figure proves many small business are likely making other mistakes too when it comes to calculating and paying their taxes. In this post we outline a list of mistakes small businesses commonly make when dealing with their tax affairs.

Incredibly most tax mistakes emanate from neglecting basic bookkeeping duties. The details of which are discussed below.

Without further ado we now list the biggest tax mistakes made by SMEs.

Paying tax too late

As mentioned above over 800,000 small business owners received a fine during 2015 due to late submission of their tax return. Procrastination is likely the key factor in this failure. Most business owners quite rightly prefer to spend their precious time on core business activities instead of on compliance duties. In the absence of a professional tax return or bookkeeping service many small business owners neglect their tax return until it is too late. The longer you leave your tax return the heftier the fines you receive. HMRC also charge interest on overdue tax.

Keeping your books up to date significantly eases the process of completing your tax return. We recommend you adopt the ‘Swiss chese method’ to completing your books. This is a classic time management technique when you slowly chip away at tasks in a piecemeal fashion. Another time management technique is the Pomodoro technique. Use a timer to break down bookkeeping tasks to 25 minute chunks. Once 25 minutes has lapsed take a short break and then repeat the process.

Another solutions is to choose The Financial Management Centre to complete your tax return on your behalf.

Click here to learn the virtues of early tax return submission.

Incorrect or incomplete tax return

Tax calculations are based on information contained in your books. It follows if you don’t take care when completing your books you won’t take advantage of all tax deductions. You also risk under or over reporting on revenue and hence profit. Errors could lead to a HMRC tax investigation and possible fines and/or prosecution.

To solve the problem consider seeking the services of a bookkeeping company such as The Financial Management Centre. Or alternatively you could attempt to dedicate more time on bookkeeping tasks yourself. Many taxpayers hed this advice only to make unconscious mistakes in their bookkeeping efforts. This could be due to an outdated bookkeeping system or just a general lack of understanding of basic bookkeeping theory.

Inconsistent bookkeeping entries

At The Financial Management Centre we commonly discover new customers mix where expenses are entered in their books. For instance if you pay a subscription for an online service (such as your bookkeeping cloud software) you may enter this expense under ‘subscriptions’. However in subsequent months you may enter this expense as ‘computer consumables’. When your accountant signs off your books at the end of your financial year he or she looks out for this sort of error. Your accountant must correct this sort of error in order to achieve consistency. Error correcting takes time and usually equates to an expensive accounting bill!

Take advantage of The Financial Management Centre’s bookkeeping service to make sure your books are clean and tidy. Our service typically means you save money on your accountancy bill since less time is spent by your accountant at year end looking for mispostings and making adjustments.

The issue of ‘employees in disguise’

One common tax error relates to employees’ ‘employment status’. If you enter a contract with a self-employed person HMRC may later argue this person is in fact your employee.

In determining whether a self-employed person is in fact an employee HMRC applies a basic test asking:

If HMRC concludes the self-employed person is an employee, you are required to pay the PAYE you should have taken from the employee’s wages. You also pay tax on PAYE tax as the amount owed is deemed a ‘benefit in kind’ to employees in question.

HMRC is ruthless in pursing amounts deemed due. If the period in question relates to several years, the amount due to HMRC in unpaid tax could potentially put you out of business.

Contact The Financial Management Centre Today

If you require assistance completing your tax return, call The Financial Management Centre on 0800 470 4820. Click here to find your nearest office or complete the enquiry form.

  • Do you tell the self-employed person where and when to work?
  • Is it allowable the self-employed person to employ his or her own staff to complete the task or must he or she complete the task personally?
  • Does the self-employed person use their own equipment or equipment supplied by you when completing the task?

If HMRC concludes the self-employed person is an employee, you are required to pay the PAYE you should have taken from the employee’s wages. You also pay tax on PAYE tax as the amount owed is deemed a ‘benefit in kind’ to employees in question.

HMRC is ruthless in pursing amounts deemed due. If the period in question relates to several years, the amount due to HMRC in unpaid tax could potentially put you out of business.

Contact The Financial Management Centre Today

If you require assistance completing your tax return, call The Financial Management Centre on 0800 470 4820. Click here to find your nearest office or complete the enquiry form.