Starting a new business is an exciting venture, but it also comes with various responsibilities, one of the most crucial being tax.
Tax compliance is a must for all business owners, regardless of the size or nature of their enterprise.
However, navigating the complexities of the tax system can be challenging, especially for newcomers.
Misclassification of employment status
One of the primary tax mistakes new business owners can make is misclassifying workers as self-employed contractors when they should be considered employees.
The tax treatment differs significantly for employees and contractors, and misclassifying can lead to potential penalties and back taxes if HM Revenue & Customs (HMRC) decides that the classification was incorrect.
To avoid this mistake, carefully assess the employment relationship and the factors that determine whether a person should be considered an employee or a self-employed contractor.
HMRC provides guidelines on employment status, so make sure to review them or seek professional advice if you’re unsure.
Failure to register for VAT on time
If your business’s taxable turnover exceeds the VAT threshold (currently £85,000), you must register for VAT with HMRC.
Failing to register on time can result in penalties and interest charges on the VAT you owe.
Additionally, you’ll need to ensure proper VAT record-keeping and timely submission of VAT returns.
It’s essential to monitor your sales turnover regularly, so you can register for VAT as soon as you approach the threshold.
Keep in mind that you can also voluntarily register for VAT even if your turnover is below the threshold, which might be advantageous depending on your business.
Neglecting to keep accurate records
Maintaining accurate and up-to-date financial records is crucial for any business, not only for tax compliance but also for making informed decisions and ensuring the smooth operation of your venture.
Failing to keep proper records can lead to incomplete or inaccurate tax returns, which can attract HMRC’s attention and potentially result in fines.
An accountant can ensure your records are accurate and comply with current tax rules.
Missing deadlines for tax returns and payments
Missing tax deadlines is an all-too-common mistake that new business owners make.
Whether it’s filing your Self-Assessment tax return, submitting VAT returns, or making corporation tax payments, late submissions can lead to penalties and interest charges.
Stay organised by marking all relevant tax deadlines in your calendar and setting reminders to ensure you don’t miss any critical dates.
You may also benefit from using online tax portals and direct debits to make the process more seamless.
Overlooking allowable business expenses
New business owners might not be aware of all the allowable business expenses they can claim as deductions to reduce their tax liability.
Properly accounting for these expenses can significantly impact your overall tax burden and improve your cash flow.
Make sure to keep track of all your business expenses, from office supplies to travel costs, and understand what qualifies as a legitimate business expense according to HMRC guidelines.
Get in touch with us today for more advice on tax rules and regulations.
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