As a small business owner, it’s important to ensure that you are properly handling your taxes to avoid any legal issues or financial penalties. If you are unsure where to start when it comes to taxes and your business, it is always best to get in touch with a professional accountant in your area. King and Taylor, has been around for over 150 years, so we are trusted and well-established in Gravesend. It’s easy to make mistakes when it comes to taxes, especially if you’re new to running a business or if tax laws have recently changed.
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Here are some common mistakes small businesses make with their taxes in the UK and how to avoid them:
- Not keeping accurate records
One of the biggest mistakes small businesses make is not keeping accurate records of their financial transactions. It’s important to keep track of all income and expenses in order to accurately report your profits or losses on your tax return. Without proper documentation, it’s easy to overlook deductions or make mistakes on your tax return.
To avoid this mistake, make sure to keep receipts for all business-related purchases, and use accounting software or hire an accountant to help you keep track of your financial records. Good accounting software can really help with keeping track of expenses, receipts, income and expenses, if you want more info then read this blog post, Best Accounting Software For Self-Employed.
- Misclassifying employees as contractors
Another common mistake small businesses make is misclassifying employees as contractors. This can be tempting because it can save the business money on taxes and benefits, but it’s important to correctly classify your workers in order to avoid legal issues.
In the UK, an employee is someone who works under a contract of employment and is entitled to certain rights and protections, such as minimum wage and paid holidays. A contractor, on the other hand, is self-employed and is responsible for paying their own taxes and benefits.
To avoid misclassifying your employees, it’s important to carefully review the terms of their employment and make sure that they are accurately classified. If you’re not sure, you can seek the advice of an HR professional or an accountant.
- Failing to register for VAT
Value Added Tax (VAT) is a tax that is applied to most goods and services in the UK. If your business has a taxable turnover of more than £85,000, you are required to register for VAT. Failing to register can result in financial penalties and legal issues.
To avoid this mistake, keep track of your business’s taxable turnover and register for VAT when necessary. You can register online through the HMRC website.
- Not setting aside money for taxes
Another common mistake small businesses make is not setting aside money for taxes. It’s important to save money throughout the year to pay your taxes, rather than trying to come up with the money all at once when it’s time to file your tax return.
To avoid this mistake, it’s a good idea to set aside a percentage of your profits each month to cover your taxes. You can use an online calculator to estimate how much you will owe in taxes based on your business’s profits.
- Not taking advantage of tax deductions
As a small business owner, you may be eligible for certain tax deductions that can help reduce your tax burden. Some common tax deductions for small businesses in the UK include:
- Business expenses: You can claim tax deductions for expenses that are necessary for your business, such as rent, utilities, and supplies.
- Home office expenses: If you work from home, you may be able to claim tax deductions for a portion of your rent or mortgage, utilities, and other expenses.
- Travel expenses: If you travel for business purposes, you may be able to claim tax deductions for your travel expenses, such as airfare, hotels, and meals.
To take advantage of these deductions, it’s important to keep accurate records of your business expenses and make sure to claim all eligible deductions on your tax return. Get in touch with King and Taylor for anything related to tax and accounting for your business in Kent.
In conclusion, small businesses in the UK can make a number of mistakes when it comes to taxes, including not keeping accurate records, misclassifying employees as contractors, failing to register for VAT, not setting aside money for taxes, and not taking advantage of tax deductions. By being aware of these potential mistakes and taking steps to avoid them, small business owners can ensure that they are properly handling their taxes and avoiding any legal issues or financial penalties. This is important for the long-term success and viability of the business. To avoid common mistakes, small business owners should keep accurate records, correctly classify their employees, register for VAT when necessary, set aside money for taxes, and take advantage of tax deductions.