Five common tax traps to avoid when running your small business

4) Counting income at the wrong time

Its important to include your income in your accounts at the right time, so that you dont risk penalties for paying tax on that income late.

u2028If you’re using the cash basis of accounting, youd include your income when your customer paid you for it. Otherwise, you count income when you do the work for it egardless of when you invoice for it or are paid for it.

As an example: if you prepare accounts to 31st March each year, finish some work on 20th March 2015, invoice for it on 10th April 2015 and receive payment on 30th April 2015, you would count that income in the year ended 31st March 2015, because thats the year in which you did the work.

5) Claiming business mileage on a bicycle

If you’re an employee (including a company director), you can reclaim mileage you travel on business on your own bicycle, at a rate of 20p/mile, from your employer, without paying extra tax on the reimbursement.

However, if you’re self-employed, as from 6th April 2013 you’re no longer able to reclaim mileage travelled on a bicycle – only in a car or on a motorbike.

Tax can be an incredibly challenging issue to deal with, so it’s important to do your research and get a full understanding of your tax liabilities before you tackle it. And remember – if theres anything you’re unsure about, it’s a good idea to seek the help of a professional accountant who can help you and your business avoid falling into the quagmire!

Emily Coltman FCA is chief accountant to FreeAgent.

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