The Most Common Tax Mistakes Small Business Owners Make – and How to Avoid Them
Chrissy Leach • 29 September 2025
Avoid these common tax pitfalls and keep your small business finances stress-free.
Running your own business is exciting - but it also comes with responsibility. One of the biggest challenges many small business owners face is staying on top of their taxes. Over the years, we’ve helped clients untangle tax messes, and the same mistakes crop up time and again.
Here are the most common tax pitfalls we see – and how you can avoid them.
1. Not Saving for Tax
When you’re just starting out, it’s tempting to think of every pound earned as “yours”, but HMRC will want its share. If you don’t put money aside as you go, you could be in for a nasty surprise when your tax bill arrives.
How to avoid it:
Set up a separate savings account and move a percentage of every payment you receive straight into it. As a rule of thumb, 20-30% works for most small businesses, but it depends on your circumstances.
2. Taking Drawings Instead of Salary/Dividends
Many limited company owners don’t realise that simply “taking money out” of the business isn’t the same as being paid properly. Taking drawings can lead to tax inefficiencies or even an overdrawn director’s loan account – with an unexpected tax charge (the dreaded S455).
How to avoid it:
Speak to your accountant about the most tax-efficient way to pay yourself – usually a mix of salary and dividends. That way you’ll stay compliant and avoid paying more tax than necessary.
Note that if you’re self-employed then the post-tax profit is yours and can be withdrawn.
3. Mixing Business and Personal Finances
Using your personal bank account for business transactions might feel convenient at the start but it quickly becomes a bookkeeping nightmare. It’s easy to lose track of income and expenses, and HMRC may question the accuracy of your records.
How to avoid it:
Open a separate business bank account from day one. It makes bookkeeping cleaner, tax returns easier, and gives you a clearer picture of how your business is really performing.
This is even more important for a limited company, the bank account must be in the company name.
4. Registering for VAT Too Late
Some business owners don’t realise they need to register for VAT once their turnover passes the threshold (currently £90,000). Missing this deadline can lead to backdated VAT bills, interest and penalties – a costly mistake.
How to avoid it:
Track your rolling 12-month turnover. If you’re getting close to the threshold, speak to your accountant early. Sometimes it even makes sense to register voluntarily before you’re required to.
5. Missing Out on Allowable Expenses
Too many business owners pay more tax than they should because they don’t claim all the expenses they’re entitled to. From home office costs to business mileage, small savings add up.
How to avoid it:
Keep detailed records and receipts throughout the year. If you’re unsure what you can and can’t claim, ask your accountant – we’d rather help you claim correctly than see you overpay.
Final Thoughts
Tax mistakes are easy to make - especially when you’re juggling everything else that comes with running a business. But with a bit of planning, good record-keeping, and the right advice, you can avoid the most common pitfalls.
At CJL Accountancy, we’ve helped countless small business owners get back on track after making these mistakes – but we’d much rather help you avoid them in the first place.
👉 If you’re worried about tax or just want peace of mind that you’re doing things the right way, get in touch today.
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