Practical tax mistakes SMEs often overlook and how to avoid them.
As accountants working closely with small and medium-sized businesses, we’ve seen it all – from shoeboxes of receipts to spreadsheets that haven’t been updated since 2021.
But what many business owners don’t realise is that a few simple (and avoidable) tax mistakes could be quietly draining thousands from their bottom line each year.
Here are five of the most common — and costly — errors we see:
1. Missing Out on Allowances and Reliefs
Many businesses still aren’t making the most of schemes designed to ease their tax burden.
From Annual Investment Allowance to R&D tax relief (which isn’t just for tech firms!) and even Business Asset Disposal Relief, these can significantly reduce your tax bill. But they’re often missed because owners assume they don’t qualify — or simply don’t know about them.
2. Getting VAT Wrong
VAT is complicated – and HMRC knows it.
Whether it’s applying the wrong rate, reclaiming VAT on ineligible expenses, or forgetting to register when you hit the £90,000 turnover threshold, VAT mistakes are common and expensive. Even using the wrong VAT scheme (like sticking with Flat Rate when Standard Rate would save more) can quietly cost you over time.
3. Poor or Incomplete Record-Keeping
HMRC doesn’t just want numbers — it wants evidence.
Disorganised records can lead to lost receipts, unclaimed expenses, and delays that trigger penalties or worse. With Making Tax Digital ramping up, digital and accurate record-keeping is no longer optional. It’s the easiest win to avoid unnecessary stress and cost.
4. Not Reviewing Director’s Pay vs Dividends
Many directors default to a low salary/high dividend model – but get the balance wrong.
Done well, it’s tax-efficient. Done poorly, and you could pay too much tax or attract HMRC scrutiny. The right mix changes each year, depending on thresholds, allowances, and company performance. It’s not something to ‘set and forget.’
5. Ignoring Pension and Benefit Planning
Employer contributions into pensions are deductible – but underused.
Similarly, benefits like electric vehicles or cycle-to-work schemes can reduce overall tax liabilities for both employer and employee. These are often missed in smaller businesses that don’t think they’re “big enough” to offer such perks — but they should.
The Bottom Line?
With proactive planning and advice, most SMEs can save thousands — not through loopholes, but simply by doing things properly.
If any of the above sounds familiar, we’re here to help. A quick check-in could be the most valuable hour you spend this year.
