If you trade as a small limited company, there seven main taxes that business owners may end up paying. These are:
1. Corporation tax
2. Value-added tax (VAT)
3. Income tax (via self-assessment)
4. Income tax (via payroll)
5. Employee national insurance
6. Employer’s national insurance
7. Class 1a national insurance
So, it is no wonder that business owners sometimes make the odd mistake when it comes to their taxes!
Here are some of the most common tax mistakes we see:
VAT is the most complicated and in-depth tax. It is so complicated that even we have an employee who solely deals with VAT all day, every day. I won’t bore you with the intricate details of some of the mistakes we have seen but I cannot emphasise enough that you should check everything and assume nothing with VAT. That is the only way you will stay safe!
Another VAT mistake that needs mentioning is that we often see businesses fail to realise they have exceeded the £85k VAT turnover threshold that requires VAT registration. Often, it is considered that this £85k is in reference to the accounting year of the business.
However, that is incorrect – the £85k limit actually applies to any given 12-month rolling period. It also accounts for when the income is received rather than when it is invoiced. I told you VAT was complicated!
Additional income sources
Additional sources of income also get overlooked a lot of the time. The most common one, and one we see time and time again, is rental income. Even if you are renting a property to a friend, it is still rental income so it needs to be declared on your personal tax return.
Do not take what one person does or claims to do in regards to their taxes as acceptable for your business. Often, business owners are unaware of what their accountant does and doesn’t claim for. Also, there could be subtle differences between your situations that change tax treatments, so always check things with your tax advisor.
We also see a lot of people missing the deadline for paying a particular tax. This is unsurprising given that there are so many taxes due, so make sure you keep on top of them:
1. Corporation tax – normally 9 months and 1 day after your year-end
2. VAT – normally the 10-12th of the second month after your quarter-end
3. Income tax (via self-assessment) – 31st January and 31st July each year
4. Income tax (via payroll) – 22nd of the month in which the payroll tax month ends
5. Employee national insurance – 22nd of the month in which the payroll tax month ends
6. Employers national insurance – 22nd of the month in which the payroll tax month ends
7. Class 1a national insurance – 22nd July each year
We hope this overview of common tax mistakes has been useful and will help your business to avoid any errors in the future!If you have any questions, please feel free to get in touch with our team.