Starting a new business is unquestionably one of the most exciting things you can do, and fortunately, more people are seemingly taking the plunge.
However, it also arrives with plenty of added responsibilities. Gone are the days when your employer is handed the reigns to effectively organise your tax affairs. Instead, you are left as the one to sort things and ensure that you can pay the authorities at the end of the year.
Of course, with many start-ups failing to make significant profits in their first years, there might not be the stereotypical big bill at the end of the year. There is still plenty of paperwork to conform with, though, and this is what today’s article will cover as we look at some classic accounting mistakes.
Mistake #1 – Not keeping proper records
One of the most common accounting mistakes made by start-ups is not keeping proper records. This means that you can’t track your spending or identify areas where you need to make cutbacks. Not only is this frustrating, but it can also be damaging to the long-term prospects of your business. After all, if you don’t understand what you have spent through the course of a year, it can’t be classified as an expense when you complete your tax return.
Ideally, it would be best if you were recording all of your business expenses and income, no matter how small. This way, you can have a clear overview of your financial situation and make informed decisions about your business.
Mistake #2 – You don’t understand the tax breaks
Another common mistake is not taking advantage of the many tax breaks available to you. This ranges from not registering as a limited company (which can lead to significant tax savings) to not claiming mileage allowances. These allowances will change every year. For example, in the most recent budget, the government announced that businesses could claim a “super deduction” of 130% with plant and machinery. Suffice to say, the difference this can make to your overall tax bill can be significant.
Mistake #3 – You don’t deduct VAT
If your business is VAT registered, you are entitled to deduct the VAT you have paid on business expenses. This can include items such as stationery, advertising and business travel. However, many start-ups forget to do this and, as a result, end up paying more tax than they need to.
Mistake #4 – You don’t understand your tax period
The UK tax year runs from April to April. This is a hugely important point to note for your business, as it can impact any investment decisions that might be you may have pending. Some companies, with assistance from qualified professionals, of course, may choose to delay or bring forward investments depending on their tax position for the period in question. Having an understanding of this, or at least having access to the professionals that do, is hugely important as a start-up.