7 Common Bookkeeping Mistakes UK Micro-Entities Make (And How to Avoid Them)

Even with simplified micro-entity accounting rules, many UK small business owners make the same bookkeeping mistakes year after year. These errors can lead to inaccurate accounts, unexpected tax bills, or problems with Companies House.

The good news? Most of these mistakes are easy to fix once you know what to watch for. Here are the seven most common bookkeeping errors we see, and how to avoid them.

1. Mixing personal and business finances

The mistake

Using your business bank account for personal spending, or paying business expenses from your personal account. This makes it nearly impossible to track actual business income and expenses.

Why it's a problem

• You can't accurately calculate business profit
• You might claim personal expenses as business expenses (which HMRC won't allow)
• Your accounts will be a mess at year-end
• It wastes your accountant's time (and your money) sorting everything out

How to avoid it

Open a separate business bank account and use it exclusively for business transactions. If you need to move money between personal and business accounts, record it properly as a "director's loan" or withdrawal, not as income or expense.

2. Not keeping receipts and invoices

The mistake

Throwing away receipts or not saving invoices, thinking the bank statement is enough.

Why it's a problem

• You're legally required to keep records for 6 years
• If HMRC asks for proof of an expense, you won't have it
• You might forget what a transaction was for months later

How to avoid it

Keep digital copies of all receipts and invoices. Take photos on your phone immediately after a purchase, or save email receipts to a dedicated folder. Store them organized by month or category.

3. Leaving bookkeeping until year-end

The mistake

Not touching your bookkeeping for 11 months, then trying to do everything in a panic before your filing deadline.

Why it's a problem

• You'll forget what transactions were for
• Missing receipts become a bigger problem
• You have no idea if your business is profitable throughout the year
• You might miss tax-saving opportunities
• Year-end becomes extremely stressful

How to avoid it

Set aside 1-2 hours every month to update your bookkeeping. Review transactions, categorize expenses, and make sure everything is recorded. Monthly bookkeeping is far less painful than an annual marathon.

4. Incorrectly categorizing expenses

The mistake

Putting expenses in the wrong categories, or lumping everything into "Miscellaneous" or "General."

Why it's a problem

• Your Profit & Loss statement won't accurately show where money is spent
• You can't track which areas of spending are highest
• Some expenses might be treated differently for tax (like equipment vs supplies)
• Your accountant will need to spend time recategorizing everything

How to avoid it

Learn the main expense categories for your business type and stick to them. When in doubt, make a note and ask your accountant. Our guide on how to categorize transactions covers the essential categories for UK micro-entities.

5. Not reconciling bank statements

The mistake

Recording transactions without checking they match your actual bank statement.

Why it's a problem

• You might miss transactions
• Duplicate entries can sneak in
• Bank errors (rare, but they happen) go unnoticed
• Your records won't match your actual bank balance

How to avoid it

Every month, compare your bookkeeping records to your bank statement. Every transaction in your bank account should be in your records, and vice versa. This is called "bank reconciliation."

If you're using cash-basis accounting (which most micro-entities do), this should be straightforward because you're only recording transactions when money moves.

6. Claiming non-allowable expenses

The mistake

Recording personal expenses as business expenses, or claiming costs that HMRC doesn't allow.

Why it's a problem

• If HMRC investigates, you'll have to pay back tax plus penalties and interest
• Your accounts will overstate expenses and understate profit
• It's illegal if done deliberately

Common non-allowable expenses include:

• Personal shopping or meals
• Commuting from home to a fixed office
• Fines and penalties
• Client entertainment (meals, drinks, events for clients)
• Personal proportion of mixed-use expenses without proper calculation

How to avoid it

Only claim expenses that are "wholly and exclusively" for business purposes. If you're unsure whether something counts, ask your accountant before claiming it.

7. Not backing up your records

The mistake

Keeping all your bookkeeping in one place (like a single spreadsheet on your computer) with no backup.

Why it's a problem

• If your computer fails, you lose everything
• If a file gets corrupted, years of work can disappear
• You're legally required to keep records for 6 years – you can't claim "my laptop died"

How to avoid it

Use cloud storage (Google Drive, Dropbox, OneDrive) for your bookkeeping files, or use cloud-based bookkeeping software. This way your records are automatically backed up and accessible from anywhere.

How proper tools help avoid mistakes

Many of these mistakes happen because manual bookkeeping is time-consuming and confusing. Good bookkeeping software designed for UK micro-entities can help by:

• Importing transactions directly from your bank
• Suggesting correct categories based on transaction descriptions
• Automatically reconciling with bank statements
• Keeping everything backed up in the cloud
• Reminding you to update your books regularly

This is exactly why we're building Bridgly – to make bookkeeping simpler and help micro-entities avoid these common pitfalls.

Summary: Your bookkeeping checklist

To keep your micro-entity bookkeeping accurate and compliant:

• ✓ Use a separate business bank account
• ✓ Keep digital copies of all receipts and invoices
• ✓ Update your bookkeeping monthly (not yearly)
• ✓ Categorize expenses correctly
• ✓ Reconcile with bank statements regularly
• ✓ Only claim allowable business expenses
• ✓ Back up all your records

Get these basics right, and you'll save yourself time, money, and stress when it comes to filing your accounts and tax returns.

Related reading:

• Getting Started with Bookkeeping for UK Micro-Entities
• How to Categorize Bank Transactions
• Understanding Micro-Entity Accounts in the UK