Most tax problems in small businesses don’t come from “doing something dodgy” — they come from admin slipping, deadlines creeping up, and numbers not being up to date.
Here are the 10 most common UK tax mistakes we see SMEs make, plus simple ways to avoid them.
This is general UK information, not personal tax advice. Rules can vary by business type and circumstances.
1) Missing deadlines (then paying avoidable penalties)
What goes wrong: returns and payments are left until the last minute — Self Assessment, VAT, CIS, payroll, or company deadlines get missed.
Why it hurts: HMRC penalties can escalate quickly. For Self Assessment, late filing starts with a £100 penalty, then daily penalties after 3 months, plus further penalties at 6 and 12 months.
How to avoid it:
- Put recurring deadlines in your calendar (monthly/quarterly, not yearly).
- Keep bookkeeping up to date so filing is routine, not a panic.
- Agree who’s responsible for what (you vs accountant) in writing.
2) Poor record-keeping (or losing the paperwork)
What goes wrong: missing receipts, incomplete sales records, “I’ll sort it later”, or mixing business and personal spending.
Why it hurts: it increases errors, missed deductions, and the stress/time needed to file.
How to avoid it:
- Separate business and personal finances (business bank account where possible).
- Use a simple capture habit: “receipt → app/email folder → done”.
- Keep records for long enough:
- Self-employed: keep records at least 5 years after the 31 January deadline for the relevant tax year.
- Limited companies: keep records 6 years from the end of the last company financial year they relate to (sometimes longer).
3) Claiming expenses that aren’t allowable (or claiming too much)
What goes wrong: personal items put through the business, unclear “dual purpose” costs, or claiming things that are commonly disallowed.
Why it hurts: it can trigger corrections, tax increases, and unpleasant back-and-forth.
How to avoid it:
- For sole traders, HMRC guidance is clear that you can deduct costs of running your business when working out taxable profit — but you need to follow the rules.
- For limited companies, HMRC explains you can deduct certain costs to work out taxable profit for Corporation Tax (as “revenue expenses”) and they must be included in your accounts.
- When in doubt, ask before you file — especially for mixed-use items (phones, vehicles, home working, etc.).
4) Forgetting to register for VAT (or registering late)
What goes wrong: turnover creeps above the threshold and no one notices until it’s too late.
Why it hurts: HMRC states you must register if taxable turnover for the last 12 months goes over £90,000, or if you expect to exceed it in the next 30 days. Late registration means you may owe VAT backdated to when you should have registered (and potentially penalties).
How to avoid it:
- Track turnover monthly on a rolling 12-month basis.
- Set a “VAT threshold warning” at (say) £80k–£85k so you can plan pricing and cashflow.
- If you cross the threshold, HMRC sets deadlines and an effective date of registration (e.g., register within 30 days of month-end; effective date is the first day of the second month after you go over).
5) Filing VAT late (or treating nil returns as “not needed”)
What goes wrong: VAT return missed because bookkeeping isn’t ready, or people assume a nil return doesn’t matter.
Why it hurts: HMRC uses a points-based system for late VAT returns (including nil returns). Points can lead to a £200 penalty once you hit the threshold.
How to avoid it:
- Close bookkeeping monthly (even if VAT is quarterly).
- Build a simple quarter-end checklist: reconcile bank, check VAT codes, chase missing invoices, then file.
6) Payroll RTI errors (especially “on or before payday”)
What goes wrong: payroll is run, but reporting to HMRC is late or incorrect.
Why it hurts: HMRC requires reporting via RTI. An FPS is generally submitted on or before payday.
How to avoid it:
- Set payroll cut-off dates (e.g., “changes by the 20th, payday 28th”).
- Keep a starter/leaver checklist.
- Don’t “guess” payroll figures — tidy timesheets/records first.
7) CIS admin mistakes (contractors + subcontractors)
What goes wrong: contractors miss monthly CIS returns, don’t keep records straight, or only look at CIS at year-end.
Why it hurts: CIS monthly returns have a specific deadline and penalties can apply for late returns. HMRC’s CIS contractor guidance covers monthly return obligations.
How to avoid it:
- Treat CIS as a monthly routine (not a yearly tidy-up).
- Keep subcontractor details, verification info, and deduction statements organised.
- If you’re behind, prioritise the latest month first, then work back.
8) Confusing Corporation Tax payment vs filing deadlines
What goes wrong: directors assume they can pay when they file, but the tax payment date often comes earlier.
Why it hurts: HMRC states the deadline for paying Corporation Tax is before the deadline for filing the Company Tax Return, and it’s usually 9 months and 1 day after the end of the accounting period.
How to avoid it:
- Set aside a monthly “tax reserve” so the bill doesn’t hammer cashflow.
- Get draft figures early (management accounts help) so you can plan.
9) Getting caught out by “payments on account” (Self Assessment)
What goes wrong: sole traders and partners budget for one bill, then discover they need to pay in advance too.
Why it hurts: many taxpayers have to pay payments on account — typically due alongside the January deadline and again later in the year (depending on circumstances).
How to avoid it:
- Don’t treat your first Self Assessment bill as “one-off”.
- Build a tax pot and top it up monthly.
- File earlier so you know the number sooner.
10) Ignoring Making Tax Digital for Income Tax (MTD IT) — April 2026 is close
What goes wrong: relying on spreadsheets and a yearly “big tidy-up” when quarterly digital updates are coming.
Why it hurts: MTD for Income Tax becomes mandatory in phases starting 6 April 2026 (first wave includes qualifying income over £50,000).
How to avoid it:
- Move to digital record-keeping now (and keep it simple).
- Choose MTD-compatible software and build a monthly routine.
- Don’t wait until the first quarterly update deadline is on your doorstep.
Quick “avoid the stress” checklist
- ✅ Separate business and personal spending
- ✅ Close bookkeeping monthly
- ✅ Track VAT threshold on a rolling 12 months
- ✅ Keep a tax reserve pot (VAT + PAYE + CT/SA)
- ✅ Run payroll with a clear cut-off + report on time
- ✅ Treat CIS as monthly admin, not year-end chaos
- ✅ Prepare early for MTD IT (if it will apply to you)
Want this tailored to Farrelly Accountants (St Helens)?
If you want, I can rewrite the CTA sections so they match your site tone (“Personal, Professional, Proven”), and add internal links to your service pages (VAT, Bookkeeping, Payroll, CIS, Corporation Tax, Management Accounts).
