When you’re running your own business, there are no shortage of scary outcomes that can keep you up at night. Indeed, having seen a pandemic, high inflation and escalating utility costs in recent years, some business owners may have felt like they’ve had quite enough already.
But often the most galling challenges are ones that could have been avoided – accounting mistakes that can drain your cash flow, damage your reputation, and cost you thousands. We’ve put together some of the most critical ones to be aware of, to keep you safe this spooky season and beyond.
1. The VAT trap
VAT can look simple on the surface, but it can quickly become complicated as you juggle rates, schemes and different sales types. Common errors range from being on the wrong scheme (like a limited cost business paying a heavy 16.5% flat rate) to incorrectly reclaiming VAT on things like client entertainment, which is almost never allowed.
The risks
The penalties are severe. If HMRC decides an error was deliberate & concealed, the fine can be 30–100% of the tax owed. Plus, the new points-based system for late filing means just four quarterly late returns trigger an automatic £200 penalty, with another £200 for every late return after that.
How to avoid it
- As you grow your business and product-types, regularly review your VAT scheme to ensure it's still the most cost-effective one for your business.
- Keep detailed digital records of all expenses and annotate them, especially for mixed-use costs.
- Understand the specific rules for your industry, such as what you can and cannot reclaim VAT on.
2. The perils of payroll
Payroll is a classic DIY trap. It seems like a simple admin task, but with changing tax codes, pension auto-enrolment, and updated National Insurance rates, it's a major compliance risk. The risk is greater if you’re still managing payroll manually, like the 31% of SMEs still using on spreadsheets.
The risks
The error rate is shockingly high. A recent report revealed that a hefty 84% of UK small business leaders admit to having made payroll errors. These aren't harmless typos: 40% of those businesses faced penalties, with over a third of them incurring fines in the thousands of pounds.
How to avoid it
- Invest in dedicated payroll software to automate calculations and minimise mistakes.
- Stay up-to-date with the latest changes to the National Minimum Wage, NI contributions, and employment law.
- If you’re growing, consider outsourcing payroll to a specialist to ensure compliance and free up your time.
Looking to get up to date on Payroll rules? Check out our 2025 payroll update
3. The cash flow killer
Cash flow is the number one killer of otherwise healthy, profitable businesses. When your customers don't pay you on time, it chokes your ability to pay your own staff, suppliers, and HMRC.
The risks
Chronic late payments cause 14,000 UK businesses to close their doors every year; that's 38 businesses every single day. UK businesses are currently owed an estimated £26 billion in late payments, averaging £17,000 per business.
How to avoid it
- Make sure you have robust credit control processes in place to track and chase invoices consistently and improve your cash flow.
- Set clear, firm payment terms on all your invoices and contracts from the outset.
- Conduct regular cash flow forecasting to anticipate and mitigate potential payment gaps before they become a crisis.
- Stay aware of new government proposals, like a 30-day deadline for disputing invoices, which could strengthen your position.
4. The dreaded deadline
This is one of the most avoidable mistakes: simply failing to file your accounts or tax return on time. The penalties are automatic, immediate, and they snowball, costing you thousands for what is ultimately an administrative failure.
The risks
The fines add up fast. For a Corporation Tax return, you face an immediate £100 penalty, another £100 after three months, and a 10% penalty on the unpaid tax bill at six months. If you're late three times in a row, the fixed penalties jump to £500 each. A company owing £20,000 in tax that files 12 months late would face over £4,200 in fines, not including interest.
How to avoid it
- Use cloud accounting software to keep your records up-to-date year-round, not just in a panic at the deadline.
- Set calendar reminders for all key HMRC and Companies House deadlines well in advance.
- Work with an accountant who can prepare and submit your returns on your behalf, ensuring they are filed correctly and on time.
Find out more with our handy guide to corporate tax here
5. The mysterious expense account
A common, but dangerous, error among new businesses (and some old): mixing personal and business spending or failing to keep clean records. The HMRC rule is that an expense must be "incurred wholly and exclusively for the purposes of the trade". Without clear records, it's impossible to prove this, especially for "mixed use" expenses like vehicle or home office costs.
The risks
This isn’t an abstract risk. HMRC is now actively targeting businesses who make this mistake. A recent trial digital campaign to stop taxpayers from claiming personal expenditure generated over £27 million in extra tax revenue. And since this trial highlighted reporting of non-compliant private use, HMRC says it will be opening more enquiries to check that sole traders, partners, and landlords are apportioning their expenses correctly.
How to avoid it
- Open and maintain a separate bank account and credit card for your business to create a clean audit trail.
- Keep neat (ideally digitised) records for expenses like mileage logs or utility bills if you work from home to support any "mixed use" apportionment.
- Use cloud accounting software to snap and digitise receipts as you go.
Learn more tips about Personal and Business expenses here
6. The case of the missing revenue
For many business owners, the old adage of ‘if it ain’t broke, don’t fix it’, has definite limits. Fear of fraudulent payments means that 87% of SMEs that accept manual bank transfers still rely on them as a regular or preferred method of payment.
The risks
This fear of fraud is costing businesses dearly. The same study above found that 41% of consumers would abandon a transaction completely if asked to pay via a manual transfer into a personal account.
In total, this trust gap cost UK SMEs an estimated £6.15 billion in lost sales last year alone.
How to avoid it
- Implement secure, recognised third-party payment providers to build instant customer trust (check out our guide to the best payment tools here).
- Offer multiple payment options at checkout, such as digital wallets or "Pay by Bank" services, which give customers flexibility and reassurance.
- Ensure your payment systems are professional and that all account names clearly match your registered business name.
Don't let your finances haunt you
These mistakes are frightening, but they are all avoidable. They are often the result of manual processes, outdated technology, and a simple lack of time.
At Haines Watts, we do more than just file your year-end accounts. We act as your proactive financial partner. From implementing modern cloud systems to automating record-keeping, managing your payroll and VAT to ensure compliance, and providing the strategic advice you need to protect your cash flow, we know how to keep your business safe.
