Mistakes occasionally happen in every business, from the smallest family businesses to giant companies. While your colleagues, customers and clients may not feel upset by the occasional slip-up, the taxman tends to be far less forgiving.

Every year, tens of thousands of UK individuals and thousands of companies make tax mistakes. Some pay too little, others pay too much, while others fail to make use of the tax allowances that they’re entitled to.

While some tax mistakes are minor and unlikely to attract negative attention from HMRC, others can cause the taxman to take aggressive legal action, including fines, surcharges and penalties, and even the threat of winding up your business.

Has your business made a tax mistake before? Read on to learn about five common tax mistakes made by UK businesses and ensure your business isn’t doing anything that could upset cause the taxman to take action.

Making deductions for non-business travel

You’re legally entitled to deduct travel expenses from your taxable income, as long as they’re truly business related. This means a trip to London for a trade show can be deducted from your income, whereas a weekend trip to Spain can’t.

Mix business and pleasure – for example, a trip from the office to a different location for a business-related event, then other travel that isn’t 100% business related – and it can become tough to know what’s deductible and what isn’t.

The same is true for commute-related expenses. Travel to and from work is viewed as legitimate, but leisure travel isn’t. Things can get complicated when you work at home, as is true for many contractors and small business owners.

Over the last few years, HMRC has penalised several businesses and individuals for claiming travel expenses that aren’t related to business. Even relatively small issues can attract HMRC’s attention and result in extra scrutiny.

Because of this, you need to speak to an accountant to learn about what is and isn’t considered business travel. A small mistake on your return could result in serious pressure on your company, as well as a potentially hefty penalty.

Claiming that employees are really freelancers

Many businesses depend on freelance contractors in order to meet their targets and deal with fluctuations in demand throughout the year. This is no problem, as long as the freelancers working for your business are viewed as freelancers by HMRC.

One of the most common business tax mistakes is to wrongly identify employees as freelancers. Get their status wrong and your business may need to pay PAYE on top of the amount it’s already paid its workers.

The criteria used to determine whether an individual is a contractor or employee is quite confusing for many business owners. For example, workers that use company-owned equipment could, in some cases, be viewed as employees by HMRC.

Likewise, workers that are required to work on a specific schedule or complete their work in a specific manner may also be viewed as employees, making it necessary for your business to deduct PAYE from their earnings for payment to HMRC.

Since determining employees and freelancers can be tough, it’s best to speak to your accountant about the matter. They will be able to help you clearly define who works for your company and who is hired on a freelance basis.

Paying VAT or PAYE behind schedule

When your business misses the deadline for its tax return and doesn’t pay its VAT or PAYE on time, it faces a serious risk of being targeted by HMRC for legal action, such as the issuance of a winding up petition.

Every year, thousands of businesses pay VAT and PAYE behind schedule and face a range of issues. When HMRC records a ‘default,’ penalties and surcharges based on the business’s payment record are often applied.

Serious defaults attract more serious attention from HMRC. Companies that fall far behind schedule on their VAT return, for example, can be pursued legally by HMRC for their tax arrears and even receive a winding up petition.

This gives HMRC the power to shut down a business’s operations and liquidate its assets in order to recover the money it’s owed – not a desirable outcome for many business owners.

Avoiding surcharges and legal action from HMRC is simple – ensure your business pays its taxes on time. While a one-off late payment is unlikely to attract a serious response from HMRC, large-scale tax arrears often result in swift legal attention.

Delivering poor records to your accountant

Even if you hire an accountant or work with an accountancy firm to manage your company’s taxes, you could still be held liable for any mistakes made when filing your company’s tax returns.

It sound incredible, but it’s true. Every year, companies throughout the UK face penalties and tax surcharges for mistakes made due to negligence or incomplete financial records being delivered to their accountants.

The reason for this, from a legal perspective, is simple: while your accountant is separate from your company itself, your company used their services in order to submit its taxes. You’re therefore subject to any penalties for tax mistakes.

Because of this, it’s essential that your company double checks the documents it delivers to its accountants. It’s also that you ensure everything is submitted and clear, with no room for misunderstanding.

Another simple way to check that your tax return is accurate is to hire a second accountancy firm. Instead of completing your tax return in its entirety, the firm could simply double check that your return is free of any mistakes.

Failing to follow up on tax mistakes you’ve noticed

Your business is doing well and you’ve submitted your tax returns on time for the past few years. Your VAT return is filled out and submitted quarterly with all the information HMRC needs to accurately assess your company’s progress.

There’s just one problem: you may have made mistakes. When your company has made mistakes in filing its tax returns and doesn’t alert HMRC to these mistakes, it could face a significant bill for back taxes.

By law, HMRC can only impose penalties when your business knowingly makes a mistake or unknowingly behaves negligently. This includes failing to rectify a tax mistake that you made accidentally but later noticed.

In addition to facing a penalty for reporting inaccurate information on your tax return, your business could also be subject to stricter reporting requirements as part of its future tax dealings with HMRC.

IF you notice you’ve made a mistake, even if it was years ago, let HMRC know. If you’re honest and open with HMRC about the error, they may offer extra time to repay your company’s back taxes, reducing any strain on its finances.

Need help having a difficult conversation with HMRC?

We have decades of experience speaking to and negotiating with HMRC. If you’ve noticed a tax mistake or you’re behind with paying your tax, we can help you have those tricky conversations. Call our team on 0808 169 8676 today.