For many SME businesses, tax can be such a headache that their business suffers. Here are some of the common mistakes you should avoid.
1. Not hiring a qualified chartered accountant
This is a costly mistake for any business owner. There isn’t a more effective way to save tax than to hire an experienced, qualified chartered accountant. Chartered accountants are highly trained in accountancy and tax.
Now you notice that I refer to qualified chartered accountant. I’m surprised by how many business owners are unaware that the term ‘Accountant’ isn’t legally protected – anybody can call themselves an accountant without any training or experience. More on this subject in a separate Insight ‘Not all accountants are the same’. So, caveat emptor.
2. Not talking to your accountant BEFORE you make key decisions
Always speak to your accountant about key decisions which impact your business and personal finances BEFORE you make them. Indeed, discuss your business plans with your accountant on a regular basis.
It’s always more difficult (sometimes impossible) to unravel the tax impact of significant decisions after the event. For example, if you run your business through a limited company this can be tax-efficient – a remuneration package based on an optimum salary/dividend mix is one way of saving tax and NI. But if you take cash from your company as a dividend without speaking to your accountant first, you can find that the cash might have to be treated as a loan to you rather than a dividend. Whilst loans to directors are allowable under certain circumstances, they can have lots of tax and legal issues which can be difficult to resolve. In this instance, speak to your accountant to ensure you plan to pay dividends safely before you take the cash out of your company.
3. Not listening to your accountant when they try to help you
A good accountant will contact you with potential business improvement ideas and tax planning opportunities. Not every matter they highlight will be relevant to you, but some will be. So, consider their ideas rather than skimming over them.
Also, if your accountant gives you an important deadline to provide information to him/her, take note. If you don’t, you might miss a tax-saving opportunity; worse, you could miss a key filing deadline and incur a penalty.
4. Assuming tax is easy
Just because you’ve spent money on it doesn’t mean that you can claim it as a tax-deductible business expense. Whether it’s the cost of entertaining customers and staff, fuel and other car costs or claiming HMRC’s fuel mileage allowances, travel and the cost of food/drinks, claiming for home-working costs or tax relief for capital expenditure, you need to be aware of what’s allowable and not allowable, and what accounting records you should keep.
Tax rules are often black and white, although sometimes illogical; frequently they are complex and easy to get wrong.
Moreover, you don’t know what you don’t know. For instance, if you’re planning to spend a large amount on fixed assets such as property and plant & equipment, talk to your accountant before you place the orders with suppliers. This will help you identify maximum tax relief on such spend, given in the form of capital allowances.
5. Breaking HMRC rules, deliberately or carelessly
Most people are keen to stay compliant with HMRC rules.
Occasionally, someone assumes that they can ignore the rules without consequence. If HMRC states you must or must not do something, there’s usually a penalty for non-compliance especially if you’ve been careless or deliberately broken the rules.
Also, don’t assume that HMRC won’t enquire into your tax affairs. HMRC have the right to launch a compliance check enquiry into your tax returns, without giving you a specific reason. You may have been selected at random for an audit or because HMRC have a particular concern about your affairs.
Some clients take on fee protection insurance which gives them financial cover for the cost of accountancy fees incurred during an HMRC enquiry. But such insurance does not cover the tax you may owe and any interest/penalties HMRC impose.
My advice: keep compliant and take advantage of legitimate tax-saving opportunities by having a qualified chartered accountant on your side; then spend your valuable time on doing what you do best – developing your business, safe in the knowledge your affairs are in order.
If you need help on accountancy, tax and SME business issues, get in touch for a non-obligation, free discussion – see our Contact Us page for how to reach me.
Keeping you compliant | Saving you tax | Helping you grow
Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Whyatt Accountancy and the writer accept no responsibility for any loss arising from any action taken or not taken by anyone using this material.