Common accounting mistakes to avoid

Small accounting errors can lead to costly penalties, cash flow problems and compliance issues. Our guide to the most common accounting mistakes what you should consider, offers you some tips so you can avoid these errors. 

Poor record keeping 

Ineffective record-keeping is a major issue that can lead to: 

• missed deadlines 
• errors in tax returns 
• unnecessary additional time and stress 

It can be common for some small businesses to omit information in their records which could be useful down the line. When you enter any data, include all you can, including invoice numbers and descriptions. In addition, make sure you include the right payment due date so you pay your suppliers at the right time. 

What can you do? 

Investing in cloud-based accounting software such as QuickBooks, Xero or Dext will help automate record-keeping. Invoice capturing means you don’t have to manually enter the data. The software will enter everything ready for you to check, reducing data entry errors. You must retain invoices, receipts, and other financial documents for at least six years, as required by HMRC. 

Failing to reconcile 

Skipping bank reconciliations can result in discrepancies between your records and your bank statements. This will make it harder to check your records and identify errors.  

Human error is common, this includes transposition errors and rounding errors. You may for example have mistyped a figure that was £699 instead of £999, this isn't unusual. Without completing a bank reconciliation, you won’t know this mistake has happened. This could result in an underpayment of tax, which could lead HMRC to issue penalties and interest. 

What can you do? 

Schedule monthly reconciliations to compare your financial records against bank statements. Many accounting software tools can automate this process and have mobile apps. You could even reconcile your bank account every day rather than having a large task at the end of the month. 

 

Mixing personal with business transactions 

Failing to separate personal and business transactions is a common mistake among small businesses. Understanding your business structure and how the tax rules apply is essential to being compliant.  

Including personal transactions in your business taxes could understate your tax liability, resulting in an underpayment of tax. In addition, it can complicate your records and give your accountant more work to get your accounts and tax correct. 

What can you do? 

Opening a business bank account for your business transactions will keep your records clear and concise. Reconciling this bank account often will ensure that your records are correct. 

Inaccurate VAT calculations 

VAT mistakes can occur when the wrong VAT rate is used, you don’t double check software entries to invoices or misunderstanding VAT rules. VAT errors are common and can lead to overpayments, underpayments, and penalties from HMRC.  

What can you do? 

Working with an accountant if you’re unsure will help you understand the VAT rules that apply to your business. This includes: 

• making sure you know how to check if you should register for VAT 
• applying the right VAT rates 
• submitting correct VAT returns on time

Overlooking expenses 

Failing to claim allowable business expenses can result in your paying more tax than necessary. Business owners often forget about parking costs. They may also overlook cash expenses, especially if they lose the receipt. 

What can you do? 

Use your business bank card for all payments. This way, you can see all transactions on your bank statement, helping to keep your business records accurate. Keep detailed records and make sure you file receipts in a safe place so you don’t lose them. 

How TaxAssist Accountants can help 

DIY accounting may seem cost-effective but can result in missed tax savings and penalties. Partnering with an experienced accountant can save you time, reduce stress, and ensure compliance. 

Contact TaxAssist Accountants today on 020 3793 2199 or use our online contact form to learn how we can support your business. 

 

First published 20 Jan 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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