5 Common Tax Mistakes to Avoid in 2025

Navigating the Tax Landscape: 5 Common Tax Mistakes Businesses Should Avoid in 2025

As a business owner, you’ll know that tax compliance is a fundamental responsibility for every business, regardless of size or sector. While often viewed as a complex and daunting area, understanding your tax obligations and avoiding common pitfalls is crucial for maintaining a healthy financial standing and preventing costly penalties from HMRC. As we continue into the 2025/26 tax year, proactive tax planning and awareness can save significant stress and resources down the line.

Hence, here are five common tax mistakes you may make and here’s how to steer clear of them:

1. Poor Record-Keeping: 

This is arguably the most common and foundational mistake. With inaccurate or incomplete financial records, it makes it incredibly difficult to calculate your tax liabilities correctly.

How to Avoid This:
1. Implement a robust system for recording all income and expenses.
2. Keep all invoices, receipts and bank statements organised.
3. Utilise accounting software, such as Xero, QuickBooks, or  Sage to streamline this process, and consider seeking professional bookkeeping support if needed. Overall, having consistent, accurate records would be your best defence!

2. Missing Key Deadlines: 

HMRC imposes strict deadlines for various tax submissions and payments, including Self Assessment, Corporation Tax, VAT returns and PAYE. So it’s important to know that missing these can result in automatic penalties and interest charges.

How to Avoid This:
1. Diarise all relevant tax deadlines well in advance.
2. Set reminders and, if using an expert accountant, ensure they have all necessary information in good time.
3. For VAT, ensure you are compliant with Making Tax Digital (MTD) requirements for submission.

3. Not Claiming All Allowable Expenses: 

Many businesses fail to claim all the expenses they are legitimately entitled to, leading to a higher tax bill than necessary.

How to Avoid This:
1. Familiarise yourself with what constitutes an allowable business expense for your specific business structure, such as being a sole trader or a limited company. This can include office running costs, travel, staff expenses, training and capital allowances on equipment.
2. Keep meticulous records of these expenses. And if in doubt, always consult with your dedicated accountant.

4. Incorrect VAT Submissions: 

VAT is a complex area, and common errors include applying the wrong VAT rates to sales, incorrect calculations of VAT reclaimable on purchases, or errors in understanding place of supply rules, especially for businesses trading internationally.

How to Avoid This:
1. Ensure you have a clear understanding of the VAT rules applicable to your products or services.
2. Use MTD-compliant software like Xero for your VAT returns.
3. If your VAT affairs are complex, seeking specialist advice is highly recommended to avoid potentially significant errors.

5. Failing to Plan for Tax Liabilities: 

A surprise tax bill can put a significant strain on your business’s cash flow. Many businesses make the mistake of not setting aside funds throughout the year to cover their eventual tax liabilities.

How to Avoid This:
1. Regularly estimate your upcoming tax payments (Income Tax, Corporation Tax, VAT) based on your business performance.
2. Open a separate bank account to save for tax, and by proactively tax planning with your accountant, it can help you forecast these liabilities and implement strategies to manage them effectively.

Expert Tax Support from Ellis & Co:

At Ellis & Co, we understand that navigating the complexities of the UK tax system can be challenging for busy business owners. So rest assured our dedicated tax team offers proactive advice and comprehensive services to ensure you meet all your compliance obligations efficiently and effectively. We can help you with everything from accurate record-keeping and timely submissions to strategic tax planning and identifying all legitimate claims and reliefs, helping you to avoid these common pitfalls.

Don’t let tax mistakes hinder your business success in 2025/26. If you require professional assistance to ensure your tax affairs are in order, Ellis & Co is here to help. 

Ellis & Co Director, John Farrell advises: 

“Proactive tax planning and staying organised are not just about compliance; they are about financial prudence. So many common tax mistakes are entirely avoidable with the right systems and expert guidance. Our aim at Ellis & Co is to take the stress out of tax for our clients, allowing them to focus on running their business with confidence, knowing their tax affairs are in safe hands.”

About Ellis & Co

Ellis & Co is a leading accountancy firm specialising in bookkeeping, accountancy & audit, payroll, tax planning and business advisory services. We work with a diverse range of businesses, from start-ups to established companies, ensuring they have the financial clarity and support they need to succeed. With our team of experienced accountants based in Chester and Wrexham, we are proud to offer personalised solutions that help businesses succeed.

If you’re ready to take the next step in your business journey, get in touch with us today. Call us at 01244 343 504 or look through our website to learn more about how we can help you with all your accounting needs.