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Iceni Magazine | January 28, 2022

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Keeping Tabs on Your Taxes: Avoid These Pitfalls of Business Accounting

Keeping Tabs on Your Taxes: Avoid These Pitfalls of Business Accounting

As the saying goes, there’s nothing certain but death and taxes.

Small business owners need to concentrate more on the second option. Every business needs to file for taxes and fill out a tax return as part of its financial management. Unfortunately, it’s not always as simple as that.

There are plenty of pitfalls that you could fall into when filing your taxes that could cost you. If you know what those pitfalls are, you can more easily avoid them.

1.   Failing to Register for Self Assessment

Some people get confused about whether they should register for self assessment. You can earn a certain amount of money a year without paying income tax, but even if you earn below this threshold, you still need to declare your earnings.

This is also true if you’re working as an employee and running a business on the side. You still need to be registered as self-employed, because your business taxes aren’t automatically deducted from your salary.

You need to make sure that you register as self-employed before October the 5th. You should also submit your self-assessment tax return and pay your taxes before January 31 for an online tax return. If you go with a paper tax return instead, the deadline is October 31.

Failing to submit your taxes or filing them late can lead to significant penalties and fines.

2.   Paying the Incorrect Amount on Your Taxes

It’s easy to pay the wrong amount on your taxes. It’s tempting to underreport your income, but it never works out. Even if it’s not deliberate, you may try to deduct things that you aren’t entitled towards.

Another, surprisingly common issue is overpaying your business taxes. You pay for your net income, not your gross income. That means that if you sell a product worth £10, but it costs you £4 to make, then you only pay for the £6 profit.

Tax compliance is always important to make sure that your company isn’t liable for fines. Use professionals to make sure that everything is above board. For example, payroll bureau services can make sure that your employees’ payroll and PAYE are sorted out.

3.   Being Misinformed

As with any venture, you should do your research and make sure that you know exactly what you’re doing. However, many business owners still believe certain tax myths which could lead to them paying the incorrect amount on their taxes.

Some of these myths aren’t as serious but could result in you paying more than you need to, or losing out on financial benefits.

4.   Not Planning For Your Taxes

You should at least track your business expenses and income. An accurate record of your finances will help you to pay the right amount on your taxes. However, tax planning goes a little further than that.

You should never be surprised by how much you owe on your taxes. Look for ways to minimise the bill throughout the year. While you’re at it, save up for your tax payment so that you can pay it off earlier in the year.

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