New businesses are often equally new to tax matters. This is understandable; unless you’ve been working as a tax specialist in your career so far you can’t be expected to become an expert overnight. Nonetheless, it is definitely better to avoid tax mistakes as far as possible, as otherwise you could end up paying more than you have to or getting stung by penalties.
There are a number of tax mistakes that are particularly common amongst new start-ups. Some of the most notable examples include:
Not Getting Help
It can be really tempting to try and go it alone as much as possible when first starting out in a new business venture. However, tax is a complex matter, and getting it wrong can prove costly. Unless your books are going to be very simple, it’s quite likely you will be better off getting help before too long. A professional accountant can not only handle your accounts for you but also provide valuable advice on tax advantages and other financial matters, ensuring you pay no more than necessary.
Using a Personal Bank Account
For sole traders, there is nothing prohibiting you from using your personal bank account for business matters. However, while this may look like a way to simplify the process of getting your business off the ground it actually complicates things. Once year end rolls around, you will have to go through your bank accounts (or pay your accountant for the time it takes them to do it) separating out business-related items from personal ones. If you just used a separate account, which would likely take less than an hour to open, this would not be a problem.
Not Fully Taking Advantage of Electronic Payments
Making and receiving payments electronically has a huge advantage for businesses; it means that there is a written record of the transaction. This record comes complete with the date, and all such payments are listed in order on your bank statement. If these are lost, they can easily be recovered through online banking or contacting your bank directly. In short, your bank statements form an automatic back-up bookkeeping system – but only for electronic payments. Use electronic payments whenever possible for maximum benefit.
Not Keeping Receipts
Throwing away receipts can make it much more difficult and time-consuming to sort out your business expenses when you come to submit your tax return. Either this will waste your personal time, or it will waste the time of your accountant who will have to charge. Furthermore, it inevitably means that some perfectly valid expenses will be overlooked and go unclaimed, and even small expenses can really mount up over the year. Make sure you keep all receipts for business purchases, big and small, and file them away properly where you can easily find them again.
When first starting your business, you will naturally have a lot to do and plenty on your mind. It can be tempting, therefore, to leave off doing your books for a while. Either this can mean neglecting them at the very beginning or repeatedly neglecting them for long periods before sorting them out in one long blitz. However, this makes it harder to accurately assess your business situation and significantly increases the risk of mistakes. Ultimately, it is a very bad idea.