Common mistakes in the life of the self-employed

 

As we well know, self employed workers must keep correct control of their finances and above all maintain an adequate record and documentation of all their activity, when preparing their taxes.

However, this task is usually a problem for many freelancers because not only do they sometimes have to put aside their own work, but sometimes this task is too complicated.

This is why on many occasions the self-employed make mistakes that can even lead to the payment of a financial penalty. In any case, it would be minor errors, since there would be no intention on the part of the manager or employer, but even so, it could still lead to issues with HMRC.

Therefore, we are going to tell you which are the most common mistakes so that you know how to avoid them, some with penalties and others so that we know better how to organize our day to day.

Do not differentiate between personal account and work account (bank)

This is one of the most common mistakes among freelancers, and yet it can have serious consequences.

This single account supposes that there are problems in accounting and when it comes to having to justify the entry and exit of money in that account, since these financial movements should correspond only to the professional account.

Important advice: keep all the supporting documents you can

Normally, the self-employed tend to keep each of the receipts for most of the expenses of their business, to pay VAT and personal income tax. However, many businessmen have the erroneous belief that smaller movements do not need to be registered, and although they can sometimes go unnoticed by the Tax Authorities, this practice is also carries fines.

Errors in the transcription of accounting data

As we have already mentioned, many SME entrepreneurs have to personally take care of their business accounting.

And since we are all human, it is also quite common to make a mistake when transcribing this data. However, even if it is a punishable cause, if the self-employed person duly justifies the error and sends the corrected information, the Tax Authorities will take it into account as a mistake, without further consequences.

Not taking into account the difference between spending and investment

These two concepts, although they seem synonymous, are actually quite different.

Spending involves using money to purchase consumable goods, and we are faced with an investment when the capital used is aimed at obtaining goods that will give its benefits in the medium or long term.

In this way, the investment would become part of the business asset and would not be declared in the same way as an expense.

Failure to correctly deduct bank charges

The self-employed must require their bank to issue a series of receipts proving the payment of the self-employed fee or the insurance premium (tax expenses that can be deducted), since the bank communicates this to the Tax Authorities, type of capital movements.

If it is not done in this way, an income of this type or a transfer not duly justified may also be cause for a financial fine by HMRC.

We hope that now that you know these easily avoidable mistakes, you will not have problems with the Tax Authorities again and you will save yourself uncomfortable situations with your business.