Many small businesses and startups do a fantastic job and provide an amazing service to their clients and customers.
But too often they can be tripped up by the tricky business of taxes. Here are some of the most common tax mistakes made by startups and how you can avoid them.
Not getting tax planning advice
Tax planning is essential for every business, from tiny startups to huge corporations. The fact is that each business in the UK is legally obliged to follow the rules and guidelines set down by HM Revenue and Customs.
Unfortunately, many businesses see tax planning as an unnecessary expense that you can easily do without. But good tax planning can make a massive difference to the way that you operate.
Skilled tax specialists can not only organise your finances to work in the most tax-efficient way possible they may also be able to reduce your tax liabilities, effectively freeing up money for you to use.
Not setting up a separate bank account
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Many start ups blur the line somewhere between working freelance and running a business. One of the problems that often comes about is in the situation where a freelancer has seen their business expand and doesn’t make the necessary changes in their banking situation to allow them to cope properly for tax purposes.
The simple fact is that if you start to trade like a business, you need to have a separate bank account for work payments. If you don’t, you’ll almost certainly find yourself in a situation where you need to spend hours going through your statements just to make sense of them.
Not doing bookkeeping early enough
One of the most common problems with new businesses is when they don’t understand the importance of good bookkeeping until it’s too late.
Small businesses owners are naturally more likely to busy themselves with the actual day-to-day running of the company and doing their work than they are to focus on the financial paperwork.
The problem is then that you will get seriously behind to the point where it is unmanageable. That’s why it is so important to do your bookkeeping thoroughly from day one, then you’ll stay in control of your finances.
Not tracking expenses or keeping receipts
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If you’ve just started your small business you might not be aware of how much you can deduct from your business expenses. Startups need to track every single business expense they make – from transport costs to computers and stationery.
This also means you need to hold on to all your purchase receipts so that you have proof of those expenses. Keep a sensible filing system and you will be putting yourself in a good position to save yourself tax money.
It’s amazing how much the small amounts from tax deductions can mount up to make a massive difference at tax prep season.
Always use the same card for business transactions
This relates slightly to the fact that you need to have a separate business bank account to help you stay on top of your finances. You should always use your business account to make any transactions that relate to work.
This means that there will always be a full electronic record of every purchase and sale you make and it will be stored by your bank. It should also be noted that you shouldn’t make payments on other cards or from different accounts, as this will be very difficult to keep track of.
If you can avoid making or receiving payments in cash too, you won’t need to make detailed records – but obviously this won’t be possible for every business.
Not using an accountant
If you understand and feel confident keeping your own books and managing your tax affairs it might seem like you can save money by doing it all by yourself.
To a certain point this is true and for very small businesses it may be possible to work without an accountant. But trying to do this long term will actually cost you more money than you will save.
Once a business reaches a certain size you have to spend a lot of time keeping track of all the details or you risk making major mistakes that can cost a lot to fix. Instead it’s a smart idea to use accounting specialists so that you can stay focused on what you do best.
Article provided by Mike James, an independent content writer in the financial and property sectors, formerly making these simple mistakes on the dreaded tax bill. For the life-changing information in this post, Surrey-based Chartered Accountant Wellden Turnbull were consulted.
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