Miscalculating the amount owed to HMRC under the Flat Rate Scheme
Paying the wrong amount of tax due to miscalculation can cause your business severe issues in terms of cash flow – either now if you pay too much; or later if you pay too little and get hit with an unexpected bill!
Under the VAT Flat Rate Scheme, when calculating the amount you owe to HMRC you multiply the gross amount (including VAT) not the net amount of the sales invoice by the flat rate percentage.
Not saving receipts
How many times have you reviewed your bank statement and had no idea whatsoever what you spent that £50 on two weeks ago? Was it a business meal, supplies, petrol? Could it have been a personal expense you paid for with your business card by mistake?
Not having a record of what your money was spent on can result in incorrectly reported tax expenses and a high tax bill if you’re ever audited. So why not keep your receipts in one place and once a week, file them away. Keeping your receipts filed doesn’t have to be complicated, why not take a photo on your phone every time you make a purchase and back them up to your digital filing system once a week?
Forgetting to back up files
You can keep the best records in the world but if you don’t have them when you need them then what’s the point? Backing up your digital records may not seem like the most pressing concern but sometimes files corrupt and when it comes to your accounts, it’s better to be safe than sorry.
Combining personal and business finances
One of the first things you should do when you start a business is open a business bank account and deposit all business related income into it. When personal and business finances are combined, it can fast become very difficult to identify and separate business expenses. Putting yourself in this situation can lead you to get caught in a web of tax disputes and ultimately it just isn’t worth the hassle!
Failing to reconcile your books with your bank statement
Ensuring that there are no discrepancies between your books and your bank statement is one of the most fundamental accounting duties for any business. Reconciliation should be performed on a monthly basis in order to catch and correct any accounting errors quickly so that they don’t result in major financial problems further down the road.
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