The Most Costly Mistakes You Might Make On Your First Small Business Tax Return
There’s a lot to look forward to when you start a small business, but there are also some less enjoyable elements. Business inevitabilities like customer complaints and difficult vendor discussions probably don’t fill your heart with joy. But all of that likely fades into obscurity when you think about your tax return.
Just the term ‘tax return’ is enough to make most small business owners shudder, and this dreaded piece of paperwork will inevitably be the highest-stress piece of paperwork from your first year in operations. It could also end up being the most expensive form you fill out this year if you don’t take steps to avoid key mistakes as you go.
Speaking to a taxation specialist can save you from this stress and any associated expense by making sure you understand the ins and outs of the taxation process. But even tax-savvy small business owners sometimes make mistakes, the most common and costly of which we’ll consider here.
# 1 – The Penalty of Late Payments
You’ve got a lot on your plate in the first year of your business, meaning that it’s surprisingly easy to miss tax payments. Unfortunately, HMRC will quickly be on hand with automated penalties of up to 5% of the unpaid tax for a delay as short as 30 days. You’ll also face potential additional interest charges and a costly investigation. All of which won’t do any good for your business credit rating or profit margins.
The solution to this seems simple – put that date in your diary! But you can do even better than that. For instance, many small business owners choose to reconcile those payments across the year so they never come close to missing a cutoff date. Accounting software with built-in reminders can also be fantastic for this purpose, ensuring a reliable nudge right when you need it.
# 2 – Errors in Your Expenses
Let’s be honest, expenses are the main reason why you hate the idea of a tax return. One slip-up or incorrectly entered amount, and you may face yet more penalties, which, in the case of a careless error, can be up to 30%. The good news is that, if you spot the issue and make HMRC aware, your fine could be suspended for up to two years. But there’s no guarantee of that.
It’s far better to avoid making a mistake in the first place, and that’s not a difficult thing to achieve. Again, speaking with a dedicated taxation specialist can help here, as it ensures you’re fully aware of your allowable expenses before mistakes can happen, as well as intricacies like the need to deduct percentage amounts from things like home working expenses, etc. Proper documentation and filing processes are also key, and should include detailed records, receipts, and breakdowns where relevant. This will help you to generally handle your finances better and to ensure a clear paper trail for every expense claim you make.
There’s no reason to fear your tax return. Simply be sure to avoid costly mistakes like these!
