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Landlords make too many errors claiming expenses
15 October 2015
Landlords make more mistakes over claiming business expenses than any other financial task, according to a survey of accountants.
Just over half of accountants working with small businesses, including buy to let landlords, told researchers for online software firm FreeAgent that wrongly claiming business expenses was the most common bookkeeping error for their clients.
Accountants feel that business owners do not have a clear understanding of claiming business expenses.
The survey found 29% of accountants spend their time correcting records for clients who try to claim expenses that are not allowed under tax rules, while 24% had the opposite problem – clients failing to claim expenses to which they were entitled.
For a third of accounts, bank reconciliations was at the root of financial record keeping problems because clients did not properly record income and expenses that were included on their bank statements.
The research showed payroll and recording VAT for registered businesses was less of a problem.
Only 8% of businesses wrongly claimed VAT, while 5% did not include expenses that were allowed on their returns.
Just 2% of companies made mistakes with payroll.
One reason for this, suggested accountants, was VAT and payroll are tasks carried out quarterly or monthly while accounts are often left to the year-end.
FreeAgent CEO Ed Molyneux said: “More than half of the accountants we surveyed said that expenses were the most common area for micro-business clients to make mistakes in their accounts, so it’s clear that this is a big issue.
“Accountants regularly have to deal with the fall out of micro-businesses trying to claim back expenses - whether it’s trying to claim back expenses that they’re not allowed to, or failing to claim expenses that are actually permissible.”
HM Revenue & Customs (HMRC) can fine businesses for careless or deliberate errors in tax returns.
A careless error is doing something or failing to act as a reasonable person would in the same circumstances according to HMRC’s compliance manual for tax inspectors.
One example HMRC gives of a careless error is when a self-employed plumber does not keep good financial records, has no system for checking the accuracy of his records and cannot check they are correct.