Over the years, I’ve come to realize that business owners make many mistakes that effect informed business and tax decisions. These mistakes not only affect growth but also cripple business resilience in the event of unforeseen circumstances such as this current pandemic. It is evident from this pandemic when a lot of businesses (even multi-national firms) fold up because they cannot withstand this turbulence period due to their inability to plan for the unknown.
There have been various suggestions from practitioners as to what these mistakes are especially in relation to taxes. However, it is important for business owners to avoid such mistakes while recovering from the adverse effect of this pandemic on our businesses. This should be their priority as it strengthens the resilience of the business in terms of survival and growth.
Firstly, most owners make wrong assumptions about tax rules and lack of understanding of their business set up. One of the common assumptions is where owner-manager or directors think they are self-employed. The measures given by the government to support businesses during the pandemic clearly showed the distinction between the two. Self Employed Income Support Scheme was introduced to support the self-employed while there is nothing for the owner-manager directors. The support given to company (i.e. Job Retention Scheme) is not available to directors except when they are on the payroll. Going forward, such assumptions shouldn’t be made, and a clear strategy should be adopted in terms of any business setup.
Secondly, many SME owners tend to go for inexperienced accountants (often unqualified) because of their low fees, without considering the value for money in engaging proper qualified accountants with greater experience in business and tax. Most of these low-fee accountants do not know where to turn in event of tax problems and investigations and do not have adequate knowledge of various tax reliefs (such as R&D relief; Capital Allowance, etc.). Businesses inevitably miss opportunities to make claims for these reliefs which can boost cash flow or generate unexpected income. Planning for survival post-Covid; it is crucial to avoid this mistake and move towards engaging accountants who will support your business to survive this pandemic with various bounce back schemes from the government.
Thirdly, most business owners tend to leave accounting and tax paperwork till the last minute of filing deadlines where there is limited time for accountants to do the work and therefore are unable to give adequate advice, forgetting that they are not the ONLY client that their accountants have. The repercussion of this practice is the high risk of errors in the work carried out due to limited time and therefore the possibility of fines and penalties by Companies House and HMRC for not meeting filing deadlines. Fines and penalties create an additional burden on the business (with the damage COVID already has done to the business) resulting in additional cash outflow with no enduring benefit to the business. It is vital to avoid this going forward when businesses are back to normal.
Lastly, some business owners may hide cash takings from accountants to avoid paying taxes. This is quite common and should be discouraged by any reputable accountant because when caught, HMRC, with their extensive powers of ‘discovery’, can collect all tax evaded plus interest and penalties for the deliberate omission of undeclared takings. On the other hand, hiding cash takings could definitely limit support for business from the government in post-Covid recovery plans. Many business owners and many self-employed who have deliberately reduced their turnover before COVID did not receive the proper support because loans and schemes (such as Bounce Back Loan; CIBLS and SEISS) were the percentages of their turnover and profit respectively.
To avoid these mistakes going forward and strengthen your business resilience to survive this pandemic and you should seek professional advice to help you achieve this. Please do not hesitate to contact us.