If you’re self-employed or a company director, you must file a yearly tax return. If you make errors, miss the deadline, or withhold any information, HMRC could penalise you.
With this in mind, we’ve compiled 20 of the most common mistakes small business people make at self-assessment time—and how to avoid them.
Tax return mistakes made by small business owners – and how to avoid them
1. Missing deadlines
One of the most frequent errors is failing to meet the filing deadlines in the first place.
Paper tax returns must be submitted by 31 October, and online submissions by 31 January.
Late filings will result in an automatic £100 fine, with increasing penalties for further delays.
If you owe tax, you’ll have to pay interest, too.
2. Incorrect National Insurance number or Unique Taxpayer Reference (UTR)
Entering an incorrect National Insurance (NI) number or Unique Taxpayer Reference (UTR) will cause problems if you’ve not filed before. This information should be correct if you already have an HMRC tax account.
3. Failing to declare all income
Make sure you report all sources of income, not just those related to your primary business. This includes income from investments, rental properties, freelance work and ‘side hustles’.
HMRC has access to many data sources, including eBay and PayPal, so don’t be tempted to under-declare your earnings.
4. Claiming ineligible expenses if you’re self employed
Incorrectly claiming expenses or attempting to deduct personal costs can attract fines. HMRC closely monitors expense claims, particularly for ‘grey area’ items like travel, subsistence, and entertainment.
5. Forgetting about payments on account
If your tax bill is £1,000 or more, you need to make ‘payments on account’ to HMRC – on the assumption that next year’s income will be the same. So, if you owe £1,000, you need to pay an extra £1,000 (on account) – £500 by 31st January, and the remaining £500 by July 31st.
6. Not keeping adequate records
HMRC requires you to maintain accurate financial records for at least five years following the submission deadline. Poor record-keeping could result in penalties and challenges during an audit.
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Use accounting software such as FreeAgent and Xero to track expenses, sales, and receipts, ensuring that your records are always up-to-date.
7. Failing to claim all reliefs and allowances
Many small business owners miss out on valuable reliefs such as capital allowances, the Marriage Allowance, and tax relief on pension contributions.
8. Not declaring director’s loans
If you are a limited company director and have taken a loan of £10,000 or more from the business, it must be declared on your tax return. Failing to report this can result in penalties or greater scrutiny from HMRC.
9. Incorrect use of VAT on self-assessment
VAT-registered sole traders should not include VAT in their turnover figures for Self-Assessment.
10. Ignoring the High-Income Child Benefit Charge
If your income is £50,000 or more and you or your partner receive Child Benefit, you may be liable for the High-Income Child Benefit Charge. Many individuals have been forced to self-assess to account for this peculiarity in the tax system.
You can’t avoid paying this charge if you owe it, but the Charge has been reformed from April 2024. The Charge is tapered if you earn between £50,000 and £80,000. Previously, you’d lose the entire benefit if you earned £60,000.
11. Forgetting to include pension contributions
Pension contributions can significantly reduce your tax bill but are often overlooked.
12. Mixing business and personal expenses
Combining personal and business expenses is a common mistake, particularly for sole traders.
You cannot offset costs by having a ‘dual purpose’, for example, claiming the family broadband bill on expenses, even though this would be a cost you would have to bear regardless.
Maintain separate bank accounts and credit cards for business transactions to avoid misclassifying expenses. Again – accounting software is perfect for this.
13. Failing to report capital gains
If you have sold business assets, such as property or equipment, you may be liable for Capital Gains Tax (CGT). Failure to declare these gains can result in significant penalties.
Be aware of the CGT submission guidelines. For second properties (for example), you must declare and pay tax within 60 days of disposal.
14. Not reporting foreign income
Income received from overseas must be declared on your UK tax return, even if tax has already been paid in another country.
Ensure all foreign income is accurately reported and explore eligibility for Foreign Tax Credit Relief.
15. Omitting dividends from limited companies
Dividend tax is calculated via the self assessment process. Make sure you declare all the dividend income you receive from your own company – and any others if you have a shareholding.
Use accounting software to record your dividend declarations – and produce dividend vouchers and board meeting minutes you might also need.
16. Failing to adjust for the personal allowance if you’re a high-earner
The Personal Allowance gradually reduces for incomes exceeding £100,000. Failing to account for this can lead to incorrect tax calculations and a nasty surprise when your tax is calculated.
17. Not registering for self-assessment on time
If you’ve just started a business, you must register for Self-Assessment by 5 October following the tax year you started trading.
Register with HMRC as soon as you start trading to avoid a late registration penalty. Don’t leave this task until the last minute.
18. Submitting incomplete returns
Leaving sections of your return blank or omitting supplementary pages for additional income sources may result in an incomplete submission and processing delays.
HMRC’s internal systems have evolved over the years and tend to spot the majority of potential mistakes. But they won’t always know that you ought to have declared something.
19. Not seeking professional advice
From our experience at Bytestart, hiring an accountant is probably the most important thing you can do when you start a business.
Accountants can help with all aspects of tax – not just the self assessment process. They also have knowledge of the latest HMRC rules and tax changes.
20. Correcting your return if you make a mistake
If you realise you’ve made an error on your tax return, you can amend it within 12 months of the submission deadline.
Take the time to make corrections rather than assuming the system won’t notice.
For example, if you submitted a tax return for the 2022/23 tax year by 31 January 2024, you have until 31 January 2025 to correct any mistakes.
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