Running a small business involves a lot of moving parts, and tax is one of the areas that tends to get less attention than it deserves until something goes wrong. The mistakes below are not rare edge cases – they are things we see regularly, across all kinds of businesses, at all stages of growth.
None of them are catastrophic in isolation. But each one costs something: money, time, or the stress of correcting something that could have been avoided. And they tend to be easier to prevent than to fix.
1. Not Setting Aside Money for Tax as You Go
This is the mistake with the most immediate financial impact. Many business owners pay themselves what the bank account allows and deal with the tax bill when it arrives. In the early stages, when income is modest and the tax liability is small, that approach sometimes works. As the business grows and the liability increases, it tends to produce a nasty January surprise.
The fix is mechanical rather than complicated: a separate account, into which a fixed percentage of income is moved each time money comes in. The percentage depends on your structure and profit level, but for most sole traders something in the region of 25 to 30 percent of net income is a reasonable starting point. The money sits there, earns a little interest, and is there when it is needed. It turns tax from an emergency into a managed outgoing.
2. Missing the Self Assessment Deadline
The 31 January deadline for online Self Assessment returns is fixed, well-publicised, and still missed by a significant number of business owners every year. The immediate penalty for a late return is £100, regardless of whether any tax is owed. Interest accrues on any tax paid late. Further penalties apply for returns that remain outstanding beyond three, six, and twelve months.
The penalty is not the main cost. The main cost is the pressure of preparing a return under deadline, from records that have not been properly maintained throughout the year. That pressure produces rushed work, missed claims, and a process that is more stressful and more expensive in accountancy time than it needs to be.
The simple fix is starting earlier. October or November is a reasonable time to begin gathering records for the year ended 5 April. By January, the return should be ready to submit rather than starting to be prepared.
3. Claiming Expenses Without Keeping the Evidence
Business expenses reduce taxable profit, which is why keeping the receipts and invoices to support them matters. HMRC does not take claims on trust – if a return is enquired into, the burden of proof is on the business to demonstrate that claimed expenses were genuinely incurred for business purposes.
The most common failure is not in the claiming but in the record-keeping. Expenses are real and legitimate but the receipt was not kept, the invoice was not filed, the mileage was not logged at the time. When HMRC asks, the evidence is not there.
The practical habit is capturing receipts at the point of purchase rather than trying to reconstruct them later. A photograph taken immediately and stored digitally takes seconds and provides a permanent record. Tools like Dext and Xero make this part of a normal daily routine rather than a separate administrative task.
4. Confusing Turnover with Taxable Profit
Tax is paid on profit, not on revenue. But the two figures are not always as different as business owners assume – particularly when some expenses are not properly claimed, or when the difference between gross and net is not well understood.
The confusion tends to surface in two ways. Some business owners are surprised by a higher tax bill than expected because they had mentally anchored to their revenue figure rather than their profit. Others claim expenses loosely, without being confident that they qualify, and then either underclaim (paying more tax than necessary) or overclaim (creating a risk of correction).
Understanding which costs are allowable business expenses, and keeping those costs properly separated from personal expenditure, is the foundation of an accurate tax position. If there is any uncertainty about specific expense categories, it is quicker and cheaper to ask than to guess and correct.
5. Assuming the Accountant Will Catch Everything
An accountant can only work with the information they receive. If expenses have not been captured, income has not been recorded, or records are incomplete, the return that is produced will reflect those gaps – and the tax position will be worse, or less accurate, as a result.
This is not a criticism of business owners. It is a reflection of how the relationship works: the accountant prepares the return from the records; they do not create the records. The business owner’s job is to keep the financial picture reasonably complete throughout the year. The accountant’s job is to make the most of what they have.
The businesses that tend to get the best outcome from their accountant are those that treat record-keeping as an ongoing responsibility rather than an annual exercise, and that communicate changes in circumstances – new income sources, significant purchases, changes in structure – as they happen rather than after the fact.
The Common Thread
Looking across all five, the pattern is the same one that runs through most financial problems in small businesses: things done reactively, when they have to be, produce worse outcomes than
things done consistently throughout the year. Tax is not inherently complicated or expensive for most small businesses. It becomes that way when it is left until it cannot be avoided any longer.
The good news is that the habits that prevent these mistakes are not demanding. They are small, consistent actions – capturing receipts, moving money to a tax account, staying in contact with the accountant – that take very little time individually and compound into a significantly better financial position over time.
If any of these feel familiar, it is worth a conversation about whether your current systems are working as well as they could be. Get in touch with the team at Atria – it is a straightforward conversation, and usually a reassuring one.
This article is for informational purposes only and does not constitute financial or legal advice. For guidance specific to your circumstances, please speak to a qualified professional.
