Starting a business is exciting. You’ve probably got massive ideas, energy, and the drive to make something happen.
But, without being too much of a stick in the mud, boring accounting mistakes can definitely upend your momentum and send you falling backwards.
Luckily, foresight will go a long way in protecting you and your ideas.
Let’s break down the five accounting mistakes that trip up most new business owners, so you can focus on building your empire instead of explaining yourself to HMRC.
Mistake 1: Mixing Personal and Business Money Like They’re the Same Thing
It’s typical to start small, maybe selling products online or freelancing from your spare room – using your personal bank account feels natural, and it’s all set up.
But once you’re in a position that you’re thinking of registering as a sole trader (or have made more than £1,000 so need to do so legally), or even incorporating your business, you need a business bank account.
Now, you DO need a business bank account as a company – it’s a legal requirement. But that isn’t the case for sole traders – though it’s strongly advised.
Mixing personal and business finances can result in inaccurate financial records, making it difficult to track business performance and manage cash flow.
When tax time rolls around, you’ll find yourself scrolling through months of transactions, trying to remember whether that £15 Costa Coffee purchase was a business meeting or just Tuesday.
Ignore things like that, and you could waste thousands over years of tax returns.
Here’s why this creates problems:
- Tax compliance nightmare – HMRC wants clear evidence that expenses are solely for business purposes
- Lost deductions – You’ll miss legitimate business expenses because you can’t prove they weren’t personal
- Poor financial visibility – You’ll never truly know if your business is profitable or just breaking even
- Future funding issues – Investors and lenders want clean financial records, not statements showing mortgage payments mixed with revenue
The fix is straightforward: Open a separate business bank account immediately. Most banks offer business accounts specifically designed for small companies and sole traders.
Yes, there might be monthly fees, but consider it an investment in your sanity. When all business-related transactions flow through a single account, your bookkeeping becomes infinitely easier.
Read our guide to business bank accounts here.
Mistake 2: Treating Bookkeeping Like an Annual Chore
It’s January, and you’re frantically searching through your bank account, trying to piece together an entire year’s worth of transactions. It’s incredibly common. In fact, thousands of people miss their self-assessment deadline for practically this reason.
Many new business owners fall into the trap of thinking bookkeeping is something you do once a year when filing taxes. This couldn’t be further from the truth. Regular bookkeeping isn’t just about compliance – it’s about understanding your business.
Here’s what happens when you leave it too late:
- Stress overload – Instead of manageable weekly tasks, you face an overwhelming mountain of work under tight deadlines
- Costly mistakes – Rushing through a year’s worth of data leads to errors that trigger penalties
- Missing business insights – You lose the ability to spot profitable trends or problematic spending patterns
- Cash flow blindness – Without regular updates, you might overspend or miss opportunities
And here’s what works: Set aside time each week for bookkeeping. Friday afternoons work well – you can wrap up the week knowing exactly where your business stands financially.
Use accounting software like Xero or QuickBooks that sync with your bank account. Many transactions will categorise automatically, making the process much faster than manual entry.
Also, keep an eye on Making Tax Digital rolling out in 2026 for self-assessment taxpayers earning over £50K – this will change your habits. Learn more here and view our friendly checklist here.
Mistake 3: Ignoring the Small Expenses That Add Up
Office supplies, productivity apps, the occasional taxi to a networking event – small business expenses can feel insignificant when you’re focused on landing big clients or scaling revenue.
But here’s what many entrepreneurs don’t realise: small costs can add up over time and affect your overall financial health.
Why small expenses matter more than you think:
- Lost tax deductions – Every legitimate business expense reduces your taxable profit
- Compliance risks – HMRC expects complete records; missing expenses raises red flags during audits
- Budget planning issues – Untracked small expenses make it impossible to forecast accurately
Beyond the financial impact, missing these expenses at tax time means missing legitimate deductions. Over a year, these “small” savings can add up to hundreds or even thousands of pounds. Don’t be too liberal, though, HMRC is known to chase suspect expense claims and take people to court.
Read our handy guide here – it’s for influencers and content creators but covers the key themes.
The key is developing good habits early. When tracking expenses becomes second nature, you’ll never find yourself wondering whether that £50 charge was business-related or personal spending.
One more thing: While expenses apply to both self-employed individuals and businesses, the rules differ, and there are some notable differences. Follow government guidance accordingly.
Mistake 4: Playing Fast and Loose with Employee vs. Contractor Classifications
The gig economy has blurred the lines between employees and contractors, particularly for newer businesses that often begin with freelancers and part-time staff.
HMRC has specific criteria for classifying employees and contractors, and you need to ensure you’re correctly categorising your workers based on their employment status.
The distinction matters because employees require PAYE tax deductions, National Insurance contributions, and additional legal protections. Contractors handle their own taxes but have fewer employment rights.
What HMRC looks at:
- Control – Do you set their working hours and tell them how to do the job?
- Equipment – Do you provide tools, office space, or other equipment?
- Financial risk – Do they bear any financial risk if things go wrong?
- Exclusivity – Do they work solely for you or have other clients?
This mistake is particularly common in creative industries and tech startups, where the line between collaboration and employment often gets blurred.
You might think you’re being flexible and modern hiring freelancers and contractors, but you need to take ownership of their working relationships with the companies to ensure they’re not inside IR35.
Getting it wrong can result in hefty back-payments for unpaid taxes and National Insurance, plus penalties for non-compliance.
Get professional advice early. When hiring your first employees, consult with a payroll accountant to ensure proper classification. It’s much cheaper to get it right from the start than to fix it later when HMRC comes knocking.
Mistake 5: Underestimating Tax Obligations Until It’s Too Late
This might be the most expensive mistake on our list. Many new business owners focus intensely on generating revenue but often overlook the fact that growing income also means increasing tax obligations.
If you’re self-employed (sole trader):
- Self-assessment tax returns and payments are due by 31 January following the tax year end
- HMRC requires advance payments (payments on account) based on the previous year’s tax bill
- You’ll pay current year taxes plus advance payments for next year in the same month
If you run a limited company:
- Corporation tax is due 9 months and 1 day after your accounting year end
- Directors still need to file personal self-assessment for salary and dividends
- You have more flexibility in timing dividend payments to manage personal tax efficiently
As we can see, directors face numerous rules and often employ accountants to help them for this reason.
Build tax planning into your business from day one. Set aside 20-30% of your profit in a separate savings account earmarked for taxes. This might seem like a lot, but it’s better to have too much saved than to scramble for cash when HMRC sends their bill.
The Cost of Getting It Wrong
These mistakes aren’t just administrative annoyances – they can seriously damage your business finances.
If you miss a filing or payment deadline, you’ll face immediate penalties and fines that escalate over time. Late filing penalties start at £100 for most tax rules and can reach thousands of pounds for continued non-compliance.
Beyond the financial penalties, accounting mistakes create stress and distraction when you should be focused on growing your business. They can also damage your credibility with investors, lenders, or potential business partners who seek professional financial management.
The opportunity cost is substantial as well. Time spent fixing accounting disasters is time not spent on marketing, product development, or customer service. When you’re bootstrapping a business, every hour counts.
Why Professional Help Makes Sense
Many new entrepreneurs try to handle everything themselves to save money, but this often backfires. Hiring a qualified and chartered accountant helps business owners avoid expensive accounting mistakes and saves them a tremendous amount of time.
Professional accountants don’t just fix problems – they prevent them. They stay current with changing tax laws, help you optimise your tax strategy, and provide valuable business insights based on your financial data.
The time you save can be reinvested in activities that actually generate revenue. Think of it as buying back your time to focus on what you’re actually good at.
Getting Your Accounting Right from the Start
The best time to establish proper accounting practices is right now, regardless of how long you’ve been in business.
Remember, accounting isn’t just about meeting legal requirements – it’s about understanding your business well enough to make smart decisions.
When you know your numbers inside and out, you can confidently pursue opportunities, negotiate better deals, and build the successful business you’ve been working toward.
At Double Point, we specialise in helping entrepreneurs and growing businesses establish solid financial foundations.
Our team of chartered accountants understands the challenges facing new business owners, and we’re here to take the stress out of accounting so you can focus on what you do best.
Ready to get your finances sorted? Book a consultation with us today and discover how effective accounting can drive your business growth.
