COMMON TAX ERRORS

Tax blunders that business owners make as a result of balancing many jobs.

Common tax blunders and how to prevent becoming a victim or perpetrator of these blunders. You juggle several jobs as a business owner, and spending time with your accountants may not be your top priority when you have critical business chores to complete. However, if you don't communicate to your accountant on a frequent basis, you risk committing some of these classic tax mistakes:

FAILURE TO KEEP ACCURATE RECORDS

Collecting, classifying, and storing a slew of receipts isn't exactly a thrilling task, is it? Keeping them is, however, a common mistake made by VAT-registered business owners. You might as well hand over your hard-earned cash to HMRC. Consider this the next time you're handed a VAT receipt for a purchase: will you take it out of your wallet and throw it away? I sincerely hope not.

With so many apps available, keeping your tax documents up to date has been less... onerous (sorry). You may easily take a quick photo of receipts as you receive them and then collate them later with these apps. From there, this incredible technology and your fantastic accountant will take care of everything. We suggest using Auto TaEntry.

CLAIMING TOO MUCH FOR HOUSEHOLD EXPENSES

What's wrong about claiming business-related household expenses? There isn't anything wrong with claiming these costs. The issue is that if you claim them too many times, you could end up paying a lot more in capital gains tax when you sell your home. What is the reason for this? As the value of your home rises, you lose tax benefits on the portion of your home you use for business.

THE EMPLOYMENT STATUS AND BUSINESS STRUCTURE

Perhaps you were encouraged to start your firm as a single trader, partnership, or limited company when you first started. The regulations, on the other hand, change... and change. When was the last time you looked through and compared the various tax arrangements available?

Similarly, self-employment is a significant and complicated topic. While you may be sure in your own self-employment status as a business owner, are you certain that your freelance workers and associates are? Be aware that HMRC is tightening down on the ‘gig economy,' and business owners are now responsible for ensuring that this component is right.

TAX ALLOWANCES WASTED (£26,000)

It's been stated that tax deductions are like muscles. If you don't use them, you'll lose them. But did you know that when you add up the income tax allowance, capital gains tax allowance, savings allowance, and dividends allowance for the year, you get a total of £26,000 plus allowances? Many of these tax breaks have previously been squandered. As a result, make sure you're getting the most out of your "muscles."

EVIDENCE (OR THE ABSENCE OF EVIDENCE) TO BACK UP CLAIMS

The regulations for what costs you may and can't claim aren't as straightforward as you would believe. Many business owners make this costly but avoidable mistake by failing to hire a professional accountant or tax counsel. For example, a business owner who rented (short-term) lodging to avoid the higher cost of hotel bills while on a long business trip was denied tax relief because the proof provided did not fulfil the so-called "wholly and solely for the purpose of trade" standard.

MISSING OUT ON THESE TAX REBATE OPPORTUNITIES

Did you know that there are additional tax benefits available under the law that most business owners are unaware of? Here are a few of the most common:

• R&D is an abbreviation for research and development.
• Provision for Bad Debts (make sure you have taken all the relevant steps to recover the money)
• Capital allowances on business equipment, including furnishings that are part of the building you purchased
• Premiums on leases
• Assurance clauses
• Tax breaks for SEIS and EIS
• Entrepreneurs can breathe easier.
• Relief for lettings of £40,000 (although this might be scrapped by HMRC)

And the fact that you have to file a claim to receive most of these accessible tax relief choices is one of the main reasons why they are overlooked.

MONEY IN THE BANK FOR TAXES (OR NOT)

Many businesses struggle with cash flow, which can be a major issue at times. It is not, however, your money when it comes to VAT and PAYE. It's because of the taxman. Waiting until December or January to learn that you have a large tax bill and no funds set aside to pay it is a common mistake made by business owners when it comes to income tax and corporation tax.

Our basic recommendation is to look at your business model and plan for your taxes and liabilities to avoid this scenario. We recommend that you open a separate bank account to deposit monies to cover your upcoming taxes.

WOULD YOU LIKE TO PAY 30% MORE TAX WHEN SELLING YOUR BUSINESS?

You've made the decision to sell your company and retire (time to retire). You are, however, dealing with a buyer who is well-versed in tax law. They want to pay more for the company's assets but aren't interested in the stock. Let's pretend you agree to sell the assets for a higher price. The difficulty is that you may have missed out on a 10% tax rate and may now be subject to an additional 30% tax (or more). What is the reason for this? Assume the company sells the assets at the agreed-upon higher price and pays 19 percent corporation tax. In a conservative scenario, you'd pay 20% income tax on the money you took out. The difference between 19% and 20% is clearly greater than 30%.

ARE YOU GETTING THE MOST OUT OF YOUR BUSINESS PROPERTY RELIEF?

Of course, your company is valuable. However, a common blunder we encounter is a lack of planning for how the business should be tax-free passed on to the next generation. The regulations allow your loved ones to benefit tax-free from your hard work if certain circumstances are met. ALERT: If you don't have a Will or if you leave your business to your spouse in your Will, you're squandering this valuable tax break.

BUYING THE SHARES OF YOUR COMPETITOR

Oh, the empire is growing, and you've decided to buy out your rival. In order to complete the transaction swiftly, you purchase the company's shares rather than the assets. As mentioned in one of the earlier sections, this is a classic tax blunder since, while buying the shares is a positive move for the seller, you lose the tax benefits of buying the assets. This is essentially the inverse of the previous statement about selling the firm sooner.

FINAL REMARKS

Make sure you're not a victim or perpetrator of any of these blunders. Give us a call if you have any questions about these points. Make sure you have a tax plan in place alongside your business plan, rather than being reactive and having to do some retrospective tax preparation.