Most accounting problems in small businesses are not complicated. They come from a few everyday habits: mixing personal and business money, letting reconciliations slip, and not keeping an eye on what the directors take out of the company.
Each is easy to fix, but left alone they lead to wrong figures, extra tax, penalties and a bigger bill at year end. Here are five we see most often.
1. Mixing business and personal spending
Using the business account for personal purchases, or a personal card for business costs, makes the records harder to follow and easy to get wrong. Business costs get missed and private items get claimed.
In a limited company, personal spending from the company account is not an expense. It goes to the director's loan account or is treated as salary or a benefit, each with its own tax consequences.
The fix: keep a separate business bank account and card, and use them only for business. If something slips through, record it straight away against the right account.
2. Not reconciling the bank
If the bank balance in your accounting software does not match the real bank statement, every report built on it is unreliable. Duplicated entries, missing payments and miscoded transactions build up quickly.
The fix: reconcile at least weekly. With a bank feed this usually takes minutes. Investigate anything that does not match rather than parking it in a suspense account.
3. Losing receipts and getting VAT wrong
Without a valid VAT invoice you generally cannot reclaim the VAT on a purchase. Other common VAT errors include reclaiming VAT on business entertaining, claiming the VAT on buying a car with private use, and using the wrong rate on sales.
The fix: capture receipts as you go using an app or by forwarding emails, so each transaction has its document attached. If you are unsure about the VAT on a type of cost or sale, ask before you file, not after.
4. Letting the director's loan account go overdrawn
If directors take more from a company than they have put in or been paid as salary and dividends, the director's loan account becomes overdrawn. If it is still overdrawn nine months and one day after the year end, the company pays section 455 tax. For loans made on or after 6 April 2026 the rate is 35.75 percent.
For example, an overdrawn balance of £20,000 still outstanding at that date would mean a section 455 charge of £7,150. It is refundable once the loan is repaid, but only nine months after the end of the period in which it is repaid. If the loan is over £10,000 at any point and interest is charged below the official rate, there is also a benefit in kind.
The fix: keep an eye on the balance during the year and plan salary and dividends so that drawings are covered. Dividends must also be paid from available profits, so check the figures before declaring them.
5. Treating capital spending as an everyday expense
Equipment, vehicles and other assets that last more than a year are capital items. They belong on the balance sheet and are relieved for tax through capital allowances, not simply written off as a running cost. Depreciation in the accounts is added back for tax and replaced with capital allowances.
Getting this wrong distorts your profit and can lead to the wrong tax claim. Most businesses still get full relief through the £1m Annual Investment Allowance, but cars are excluded, so the treatment matters.
The fix: keep a simple fixed asset register and code larger purchases to the right asset account. Tell your accountant about significant purchases during the year, not just at year end.
What to do
- Open a separate business account if you do not already have one.
- Set a fixed weekly slot to reconcile the bank and attach receipts.
- Check your director's loan account balance each month.
- Flag any purchase over a few hundred pounds so it can be treated correctly.
- Ask for help with VAT queries before submitting a return.
If you would like a second pair of eyes on your bookkeeping, book a free call.
