1. Mixing personal and business spending
Always use a dedicated business account. Mixed transactions waste hours at reconciliation time and risk HMRC questioning your records.
2. Falling behind on reconciliation
Reconcile weekly, not yearly. The longer you leave it, the harder it is to remember what each transaction was for.
3. Not keeping digital receipts
HMRC requires you keep records for 6 years. Use Dext, Hubdoc or Xero's built-in capture so receipts are attached to transactions automatically.
4. Misclassifying expenses
Putting capital purchases (laptops, machinery) into general expenses overstates your tax-deductible costs and triggers HMRC scrutiny. Use a proper fixed asset register.
5. Forgetting VAT on imports and reverse charge
Services bought from overseas suppliers usually need reverse charge VAT applied. Goods from outside the UK need import VAT accounting. Missing this is a top HMRC penalty trigger.
6. Recording dividends before profits exist
Dividends can only be paid out of distributable retained profits. Paying them without the profit reclassifies them as salary — triggering PAYE and NIC backdated.
7. Ignoring the director's loan account (DLA)
Every personal expense paid by the company adds to your DLA. Overdrawn by more than £10k? You may have a benefit-in-kind. Overdrawn at year-end and not repaid in 9 months? 33.75% s.455 tax.
8. Using cash basis when accrual would save tax
Cash basis is simple but you can't carry forward losses freely or deduct certain costs. Above £150k turnover, accruals usually wins.
9. No backup of records
Cloud accounting + monthly exports to PDF/CSV protects you if a provider goes down or your account is locked.
10. DIY-ing the year-end
A good accountant will save more in tax than they cost. Plus you free up time to actually run your business.
Want a free 30-minute bookkeeping health-check? Get in touch.