Tax season strikes fear into the hearts of business owners across the UK, and for good reason.
With HMRC collecting record amounts in penalties and interest charges, getting your tax affairs wrong is usually an expensive mistake that could threaten your company’s future.
The pressure is particularly intense for small and medium enterprises, where a single tax error can wipe out months of hard-earned profits.
From missed deadlines to overlooked allowances, the minefield of UK tax legislation catches thousands of businesses off guard every year.
Chris Roberts, Managing Director at Capital Allowance Review Service, has seen it all. His company partners with UK commercial property owners, investors, and accountants to uncover overlooked tax reliefs, and he’s witnessed firsthand how simple mistakes can cost businesses dearly.
“Every year, I see the same tax blunders destroying business cash flow and eating into profits,” says Roberts. “The frustrating part is that most of these mistakes are completely avoidable with the right knowledge and planning.”
Roberts has identified the seven most damaging tax mistakes UK businesses make annually, along with practical steps to avoid them.
Missing Critical Tax Deadlines
Late filing penalties start at £100 for Corporation Tax returns, but the real damage comes from interest charges that compound daily. Miss your VAT deadline after 15 days and you’re looking at a 3% penalty on the tax owed, with additional penalties thereafter.
“I’ve seen businesses hit with £10,000 penalty bills simply because they filed their returns a few days late,” Roberts explains. “HMRC doesn’t care if you were busy or forgot. The penalties are automatic.”
The fix: Set up automated calendar reminders at least two weeks before each deadline. Even better, file early to avoid last-minute technical glitches that could leave you scrambling.
Shambolic Record Keeping
Poor record keeping doesn’t just make tax returns a nightmare. It can trigger expensive HMRC investigations. Without proper documentation, you can’t prove legitimate expenses, and HMRC will disallow them entirely.
The problem gets worse during audits. If you can’t produce receipts, invoices, or bank statements, HMRC will estimate your tax bill – and they’re never generous with their estimates.
The fix: Go digital with your bookkeeping. Use accounting software that automatically categorises expenses and backs up to the cloud. Keep physical receipts for at least six years, and photograph them immediately.
Failing To Claim Allowable Expenses
This is money left on the table. Businesses regularly miss out on legitimate deductions for office supplies, travel costs, professional subscriptions, and training expenses. Even small items add up. That £3 parking fee is still a business expense.
“Many clients come to us having underclaimed expenses for years,” says Roberts. “We often find thousands in overlooked deductions that could have reduced their tax bills significantly.”
The fix: Review HMRC’s list of allowable business expenses and create a monthly checklist. When in doubt, keep the receipt and ask your accountant.
VAT Registration Nightmares
Miss the £90,000 VAT threshold and fail to register within 30 days, and you’ll face penalties plus interest on all the VAT you should have collected. Worse still, you might have to pay this VAT out of your own pocket if you didn’t charge it to customers.
On the flip side, some businesses register for VAT when they don’t need to, creating unnecessary paperwork and cash flow issues.
The fix: Monitor your turnover monthly. Set internal alerts when you approach £75,000. This gives you breathing room before hitting the £90,000 registration threshold.
VAT Deadlines: Late VAT submissions now fall under HMRC’s penalty points system, with fines applied once you exceed the threshold for your filing frequency. For payments, if VAT isn’t paid within 15 days of the due date, HMRC applies a late payment penalty starting at 2% of the outstanding amount, rising further if payment is 30 days late or more. Daily interest also accrues until the bill is cleared.
Overlooking Capital Allowances
This is where Roberts sees the biggest losses. Capital allowances let you claim tax relief on equipment, machinery, and commercial property improvements, but many businesses either don’t claim them or claim far less than they’re entitled to.
“We regularly find businesses that have missed out on tens of thousands in capital allowances,” Roberts notes. “The Annual Investment Allowance alone lets you claim 100% relief on qualifying purchases up to £1 million.”
The fix: Review every significant purchase for potential capital allowance claims. Don’t assume your accountant will catch everything. Be proactive about flagging purchases.
Misclassifying Workers
Get this wrong and you’re looking at backdated PAYE, National Insurance contributions, plus penalties and interest. The off-payroll working rules (commonly known as IR35) are particularly strict, and HMRC is actively pursuing businesses that incorrectly classify employees as contractors.
Responsibility for determining worker status usually sits with the end client if it’s a medium or large business, but small businesses are exempt. A wrong decision can still cost thousands in backdated taxes and liabilities.
The fix: Use HMRC’s online employment status checker (CEST) for each contractor. Document your decision-making process and review arrangements regularly.
Poor Tax Planning And Budgeting
It’s common for businesses to treat tax as an afterthought, then scramble to find cash when bills arrive. This leads to missed payment deadlines, penalty charges, and cash flow crises that can threaten business survival.
“Tax should be part of your regular financial planning, not a yearly surprise,” Roberts emphasises. “Set aside money monthly, and you’ll never be caught short when bills arrive.”
The fix: Calculate your likely tax liability quarterly and set aside funds in a separate account. Consider making payments on account to spread the burden.
Chris Roberts, Managing Director at Capital Allowance Review Service, said, “Small and medium enterprises are most vulnerable to these tax mistakes because they often lack dedicated finance teams or specialist knowledge. A sole trader or small company director is juggling multiple responsibilities, and tax compliance can easily slip through the cracks.
“The irony is that professional advice usually costs far less than the penalties and missed opportunities we see. We’ve helped clients recover six-figure sums in overlooked capital allowances, while the cost of our initial assessment was minimal. The return on investment from proper tax planning is enormous.
“My advice is simple: treat tax as a business priority, not an annual headache. Get professional help early, keep meticulous records, and never assume HMRC will be lenient with mistakes. The rules are there, and you just need to follow them properly.”
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