According to HMRC, tax doesn’t have to be taxing – but sometimes, unfortunately, it is. Running a small business can be incredibly tough and gathering all the information needed to file your taxes at the end of the tax year can be a draining and difficult process for all involved. We are, ultimately, only human, and humans make mistakes at one time or another. Being aware of the more common errors made by small businesses when filing their Tax Returns could ensure that you don’t make these same mistakes and find yourself in trouble with HMRC.
- Forgetting to include all sources of income.
One of the major mistakes made by small businesses is failing to declare all sources of income. If you have an interest earning bank account, or else you possess an offshore account, HMRC are very much aware of this and could take failure to declare this income as a way of avoiding tax. Such behaviour could trigger an investigation which can be both incredibly costly and take a lot of your precious time.
- Entering the same expenses in different sections each year.
Expenses should be appropriately classified, and sometimes the need to get everything sent off on time means you become less careful when classifying recurring expenses. Putting a particular expense under one category one year and then altering the classification the following year but filing the same expense can lead to explanations being required by HMRC.
- Claiming for expenses that cannot be claimed.
Expenses are a difficult subject and the rules on what you can and can’t claim as an expense is not as easy as you might care to believe. Expenses that you claim for must be ‘wholly and exclusively for the purpose of trade’ and ensuring that you are familiar with the rules of what is considered an expense could reduce the risk of inviting a costly investigation into your business’ finances.
- Using estimates or rounding figures on your return.
Rounding up (or down) your figures or using estimates implies to the taxman that you do not have a good understanding of your books and that you don’t keep good and proper records, putting your business at risk of being scrutinised by the taxman. Using rough estimates or not providing invoices for certain expenses can add a large addition to the amount of taxable profit your business has made.
- Not asking for help in avoiding tax return mistakes.
Completing your tax returns can be difficult and isn’t always as straightforward as meets the eye. The simplest thing to do if you believe that you might need assistance in filing your tax returns is to enlist the assistance of a chartered accountant. Getting your tax returns wrong can ultimately cause a lot of issues and unnecessary stress. Removing the risk of tax penalties by enlisting the help of a professional is a viable alternative to attempting to manage your taxes yourself and finding yourself under investigation from HMRC.