Common bookkeeping mistakes, and how to avoid them

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The mistakes that cost the most

1. Mixing personal and business. Without a separate account, costs are missed and the records become a puzzle.
2. Not keeping receipts. No evidence means disallowed claims and overpaid tax. Photograph them as you go.
3. Falling behind. A year of catch up in January leads to guesses and errors. A little each week is far easier.
4. Not reconciling. If the books do not match the bank, something is missing or duplicated.
5. Misrecording VAT. Wrong rates or reclaiming blocked items cause problems at return time.

Running everything through one bank account

This is the root cause of most of the others. When personal and business money share an account, every reconciliation becomes an exercise in memory, and memory is not evidence.

A separate business account is not a legal requirement for a sole trader, but it is the single cheapest thing you can do to make the year end quick and the figures defensible. For a limited company it is not optional in practice, because company money is not your money and mixing the two creates a directors loan account nobody is tracking.

Leaving it until the year end

Twelve short monthly sessions take less total time than one long one in month thirteen, and they catch errors while you still remember what the payment was for. A £340 card payment is obvious in the week it happens and a mystery nine months later.

There is a second reason now. If you are within Making Tax Digital for Income Tax you are filing quarterly updates, so leaving the bookkeeping until the year end is not just uncomfortable, it makes the filings impossible.

Not keeping the records long enough

Sole traders must keep business records for at least 5 years after the 31 January filing deadline for the tax year concerned. Records for 2026/27 therefore have to survive until 31 January 2033.

Companies must keep accounting records for 6 years from the end of the financial year they relate to, and longer where an asset will last beyond that, where a transaction spans more than one accounting period, or where a return was filed late or is under enquiry.

Failing to keep adequate records carries a penalty of up to £3,000, and for a company it can lead to disqualification as a director. HMRC generally reserves this for serious cases, but the power exists.

Assuming a bank statement is a receipt

It is not, particularly for VAT. A card receipt or a bank line shows money left your account. It does not show what was bought, whether it was for the business, or how much VAT was charged. To reclaim VAT you need a valid VAT invoice showing the supplier's VAT number and the VAT amount.

Photograph receipts as you get them. Most bookkeeping software will attach the image to the transaction, which turns an unsupported claim into a supported one at no extra effort.

Treating Making Tax Digital as a filing task

It is a record keeping obligation first. If you are VAT registered you must keep VAT records digitally, file from software rather than typing into the HMRC website, and move data between programs by digital link. Copy and paste is not a digital link. Retyping is not a digital link.

The same digital record keeping requirement now applies to Income Tax for anyone mandated into Making Tax Digital, which from 6 April 2026 means qualifying income over £50,000.

Not tracking the directors loan account

If you run a company, this is the entry that quietly builds into a problem. Every time you take money out that is not salary, a properly declared dividend or a reimbursed expense, the account moves against you.

If it is overdrawn 9 months and 1 day after the year end, the company pays section 455 tax at 35.75% of the balance for loans made on or after 6 April 2026. Refundable, but only nine months after the year end in which you repay it. Nobody discovers this at a helpful moment.

Recording the wrong thing under cash basis

Cash basis has been the default for sole traders and partnerships since the 2024/25 tax year, and the old turnover limits have been abolished entirely. Under it you record income when you are paid and costs when you pay them, which is simpler, but it changes what a purchase looks like.

Most equipment is deducted as an ordinary expense rather than through capital allowances. Cars are the exception and are excluded from that treatment. Get this the wrong way round and the profit figure is wrong, not just presented differently.

The habit that fixes most of this

One account, reconciled monthly, receipts captured at the point of purchase, and a quick look at what you owe yourself or the company. Twenty minutes a month is the whole of it, and it removes about eight of the nine problems above.

Frequently asked questions