5 Top Tax Mistakes Directors Make

Welcome to the next article in our Accounting & Tax 101 series — short, plain-English guides to help you understand the numbers that matter.

Running your own company gives you a lot of freedom — but it also means staying compliant with HMRC. The good news is that most tax problems are avoidable if you know the common pitfalls. Here are the top 5 mistakes we see directors make — and how to avoid them.

1. Taking money out the wrong way

Not everything you take from the company is a dividend. If you withdraw cash without recording it properly, it could end up in your Director’s Loan Account, which may trigger extra tax if it’s overdrawn.

Always agree with your accountant whether the money is salary, dividend, or an expense repayment.

2. Forgetting about personal tax on dividends

Dividends seem simple — just money distributed by the company. But they also come with personal tax.

• The first £500 is tax-free.

• After that, tax is 8.75%, 33.75% or 39.35% depending on your income.

Don’t spend every penny of your dividend — put money aside for the tax bill.

3. Missing the Employment Allowance rules

Many directors miss out on this useful allowance because their company only has one director on payroll. To qualify, you need at least one other person employed (for example, another director or spouse in a genuine role).

If it applies, it can save your company up to £10,500 a year in employers’ NIC.

4. Mixing business and personal spending

Paying personal bills from the company account makes life messy — and can cost you tax if HMRC decides it’s not a genuine business expense.

Keep business and personal separate. If you need cash, take it as salary, dividend, or a recorded loan.

5. Ignoring deadlines

Tax deadlines aren’t flexible. Missing one means interest and penalties that add up fast:

• 31 January — personal tax deadline.

• 31 July — personal tax payments on account.

• 9 months after year-end — Corporation Tax due.

Put them in your diary and don’t leave things to the last minute.

The bottom line

Most director tax mistakes aren’t about doing something “wrong” — they’re about not knowing the rules. With a bit of planning, you can stay out of trouble and keep more of what you earn.

Here at Accounts Action, we help directors avoid these pitfalls every day. We keep the rules simple, remind you of the key dates, and show you the best way to take money from your business.

This article is part of our Accounting & Tax 101 series — short guides to help you understand your accounts without the jargon.