7 Business Finance Mistakes That Could Lead to Penalties
Even the slightest mistake can result in costly penalties regarding business finance. From incorrect tax filings to mixing personal and business expenses, several different missteps can trip you up. To help you avoid any costly mistakes, we’ve compiled a list of seven business finance mistakes that could cost your biz a fortune. Take a look.
Delays in Tax Payments
One of the most common—and costly—business finance mistakes is failing to file or pay taxes on time. Depending on the size and type of your business, you may be required to file quarterly or annual tax returns. If you’re unsure about when your tax return is due, the best thing to do is contact your accountant or the HMRC directly.
Not only will filing your taxes late result in interest and penalties, but it can also trigger an audit from the HMRC. Always file and pay your taxes on time to avoid any potential headaches. Availing tax returns service from an agency can also help.
Not Keeping Accurate Records
Whether using manual ledgers or computerised accounting software, it’s important to track your business income and expenses. Not only will this help you stay organised, but it will also come in handy if the HMRC audits you.
Mixing Personal and Business Expenses
While it’s tempting to use business funds to cover personal expenses (or vice versa), keeping your finances separate is important. Not only will this help you stay organised, but it will also prevent you from getting into hot water with the HMRC.
Failing to Pay Estimated Taxes
If you’re self-employed or have other sources of income outside of a regular paycheque, you may be required to pay estimated taxes throughout the year. Estimated taxes are generally due every quarter and are used to pay for medical taxes if applicable.
If you don’t pay your estimated taxes on time, you may be subject to interest and penalties from the HMRC. To avoid any potential problems down the road, consult with your accountant or tax attorney about estimated taxes before the start of each tax year.
Deducting Personal Expenses as Business Expenses
When it comes time to file your taxes, it’s important to ensure that all your deductions are legitimate business expenses. The last thing you want is to get flagged by the HMRC for claiming personal expenses as business deductions. Before taking any write-offs, ensure they fit within the HMRC’s guidelines for what qualifies as a legitimate business expense.
Claiming False Deductions
This might include inflating expenses or deducting things that don’t qualify as business expenses. Not only is this considered tax fraud, but it could also result in heavy fines and even jail time if you’re convicted.
Not Withholding Enough Taxes
If you have employees, you must withhold taxes from their paycheques and send the money to the appropriate agencies. Depending on where you live, you may also be responsible for withholding things like medical taxes, if applicable. If you don’t withhold enough taxes from your employees’ paycheques, you may be on the hook for the difference come tax time.
Final Word
While several mistakes can trip up small businesses regarding financing, these are some of the most common—and costly. To avoid any potential problems down the road, always file and pay your taxes on time, keep accurate financial records, separate personal and business finances, pay estimated taxes if required, and claim only legitimate business deductions on your tax return.
If you have any questions or concerns, feel free to ask us in the comments.
