By Jonathan Amponsah CTA FCCA, The Tax Guys

When you are running your own business, you are pulled in many directions. Firefighting may take over and you don’t make time to talk to your accountant and plan for your taxes. This can lead to many business owners making potentially expensive mistakes such as these:

Not maintaining proper records

Collating all your receipts isn’t most people’s favourite task. But for VAT registered business owners, not keeping them is a common mistake. So, the next time you fail to get a VAT receipt, consider whether to also dip into your pocket, grab some coins and throw them away.

With so many apps on the market, the task of keeping proper tax records has become less taxing. Apps like Auto Entry, Expensify and Receipt Bank mean you can easily snap the receipts on the go. The technology and your accountant can take care of the rest.

Claiming too much use of home expenses

There’s nothing wrong with claiming these expenses. However, by over claiming them, you potentially end up paying capital gains tax when you sell your property. Why? Because the value of your home will have gone up and you lose generous tax relief on the part of your home you turn into business.

Missing out on tax breaks

There are more tax breaks within the law that business owners miss out on but here are some common ones:

• Bad debt provision (make sure you’ve taken steps to recover the money)
• Capital allowances on equipment used for the business including fixtures which are part of the building you have bought
• Lease premiums
• Warranty provisions
• SEIS and EIS tax reliefs
• Entrepreneurs relief

The reason why most of these reliefs get missed is that you must make a claim to get them.

Insufficient evidence for claims

The rules on what expenses can/cannot be claimed are not as straightforward. For example: a business owner rented accommodation in Wales to avoid expensive hotel bills during a long business trip. He was denied tax relief because the evidence he submitted was not sufficient to meet the “wholly and exclusively for the purpose of trade” test.

When claiming or incurring expenses for business, ensure that the primary purpose is for the business and have all the supporting documents.

Not putting money aside for tax

Cashflow can be a huge problem but when it comes to VAT and PAYE, the taxman’s stance is simple; it’s not your money.

For income and corporation taxes, many discover in January they have a huge tax bill but don’t have the funds to pay it.

To avoid this plan for taxes and open a separate bank account to put cash away for taxes.

Wasting tax allowances

If you add up the income tax allowance, capital gains tax allowance, savings allowance and dividends allowance, you get a whopping £26,000 plus allowances in the year. Many of these allowances are wasted.

If you’ve dabbled in crypto currencies, make sure you make the most of the capital gains tax allowance.

And consider how to make use of the allowances of your spouse and children.

Not reviewing the business structure

Maybe, when you started, you were rightly advised to go for a sole trader, partnership or a limited company. But the rules keep changing. When was the last time you reviewed and compared different tax structures?

Getting self-employment status wrong

This is an area that keeps changing. Whilst you may safely get your own status right as a business owner, how confident are you that your freelance workers and associates are genuinely self-employed? HMRC is cracking down on the so called ‘gig economy’ and are putting the onus on business owners to get this right.

Accepting 30% more tax when selling your company

You’ve decided to sell up but you’re dealing with a well-informed tax buyer who wants to pay more for the company’s assets but he or she is not interested in the shares. If you agree to sell the assets you’ve potentially lost a 10% tax rate and are now face over 30% tax. This is because the company sells the assets and pays corporation tax at, say, 19%. You then need to extract the cash. Conservatively, if you pay 20% income tax. That’s 39% potential tax.

Conclusion

Unless you prepare and plan for taxes, it’s likely that you will pay more tax. This means that alongside your business plan you need a tax plan. Get support from a reputable accountant and make the most of your business’s hard-earned money.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.

www.thetaxguys.co.uk