The BIG Guide to Avoiding Costly Business Mistakes

Running a business involves learning as you go. Most mistakes are not caused by people trying to be clever.

They usually happen because:

• someone read something online

• someone heard something from a friend

• Dave down the pub said it was fine

Unfortunately, HMRC does not accept “Dave told me it was allowed” as a defence.

This guide covers some of the most common mistakes we see and how to avoid them, because most tax problems are actually very preventable.

1. Forgetting that tax exists

This is the classic.

Someone starts a business. Money starts coming in. The bank account looks healthy. Then January arrives, and HMRC would quite like their share.

A simple habit solves most of this problem: set money aside for tax as you go.

• income builds up, but no money is reserved for the tax bill

• moving part of your profits into a separate account can help

• when the bill arrives, it is annoying rather than catastrophic

Future you will be grateful.

2. Not registering with HMRC

Some people start trading and think, “I’ll deal with the tax stuff later.”

Unfortunately, HMRC expects to know you exist. If you need to file a tax return, you will usually need to register for Self Assessment by 5 October following the end of the tax year in which you started trading.

Leave it too long, and penalties can follow.

Register for Self Assessment

3. Ignoring the VAT threshold

VAT registration is usually triggered when your taxable turnover:

• goes over £90,000 in the last 12 months

• is expected to go over £90,000 in the next 30 days

It is not based on the tax year. It is rolling, which means it can creep up quietly.

Monitoring turnover regularly avoids unpleasant surprises.

Register for VAT

4. Treating the business bank account like a personal wallet

This one happens a lot.

Someone opens a company or business account and suddenly assumes it can pay for, well, everything.

We hear things like:

• “My business can buy my Christmas presents.”

• “My dog can be the company mascot.”

• “I’ll put the weekly food shop through the business.”

• “The company can pay for my house extension.”

• “The business can pay for my kids’ private school.”

• “Let’s have the directors’ meeting in Spain.”

No.

The rule is broadly simple: a cost needs a genuine business purpose. If there is both a business and a personal element, only the business part is usually claimable if it can be clearly separated.

Mixing personal and business spending can create:

• messy bookkeeping

• director’s loan issues

• additional tax

• awkward conversations later

A simple rule avoids most of this:

Keep business spending business, and personal spending personal.

5. Listening to Dave down the pub

Every accountant has heard this one.

“Dave said I can claim it.”

Dave might be:

• a builder

• a taxi driver

• your mate from five-a-side football

But Dave is not HMRC.

And unless Dave happens to be a qualified tax adviser who knows your full circumstances, Dave may be wrong.

Tax rules depend on things like:

• income levels

• business structure

• previous tax returns

• residency status

• specific reliefs

Which means the advice that works for one person may not apply to another.

6. Believing every “tax hack” online

Social media is full of posts claiming you can claim things like:

• gym memberships

• Netflix

• pets as security

• holidays as business trips

If something sounds like a clever loophole, it usually is not.

Good tax planning tends to be:

• sensible

• structured

• slightly boring

But it works.

7. Using the internet as your accountant

The internet can be incredibly useful.

Tools like ChatGPT are brilliant for:

• understanding how tax works

• explaining concepts

• learning about business rules

But they do not have access to your:

• accounts

• tax history

• income levels

• personal circumstances

Which means they cannot give personalised tax advice.

We occasionally hear, “ChatGPT said I’m owed a capital gains refund.”

Sometimes that turns out to be true. Often it does not.

Using online tools for general information is great.

Using them as your only source of financial advice can lead people in the wrong direction.

8. Not keeping proper records

Trying to reconstruct a year’s worth of transactions in January is painful.

And sometimes impossible.

Good habits make everything easier:

• keep receipts and invoices

• connect bank feeds

• use accounting software or a clear record-keeping system

• keep bookkeeping up to date

Your accountant will thank you. So will your future self.

9. Ignoring letters from HMRC

HMRC tends to assume silence means, “They definitely meant to ignore us.”

Which often leads to:

• penalties

• estimated tax bills

• further letters

Opening the letter early is usually less painful than opening it six months later.

10. Leaving everything until January

January is already busy.

Trying to organise an entire year’s worth of paperwork at once is not ideal.

Sending information earlier makes everyone involved feel calmer.

Including you.

11. Not asking questions early

Many tax problems start with someone thinking, “That probably doesn’t matter.”

But small changes can have tax implications.

For example:

• starting a new income stream

• hiring someone

• buying equipment

• renting out a property

• forming a company

If you are unsure, it is always easier to ask early.

Fixing problems later is usually harder.

Final thought

Most business mistakes are not caused by bad intentions.

They happen because:

• someone believed something they heard

• a rule was misunderstood

• something that sounded clever turned out not to be

The good news is that most of them are easy to avoid.

Keep good records. Separate business and personal spending. Set money aside for tax. And do not believe everything Jackie at Pilates tells you.

Follow those basics, and you will avoid most of the problems that cause businesses headaches later.