Spending VAT or sales tax as if it were revenue
VAT and sales tax are collected on behalf of the tax authority. They were never your money. Yet many small businesses treat the gross deposit as revenue, spend it across the quarter, and discover at filing time that they owe a five-figure tax bill they cannot pay.
The fix is mechanical. Every time a payment with VAT or sales tax lands, transfer the tax portion to a separate account immediately.
Reserving 'whatever is left'
Reserving for income or corporate tax at the end of the month, after all expenses, is the same as not reserving at all. There is rarely anything left.
Reserve at the moment cash arrives. A 25–35 percent default works for most SMBs as a starting point, refined after the first full year.
Forgetting payroll tax on owner draws
Sole traders often pay themselves a 'salary' that is technically a draw, then discover they owe self-employment tax or social charges on it at year end. The reserve rate must include this.
Treating last year's rate as next year's rate
Tax rates, brackets, and rules change every year in most jurisdictions. A reserve calibrated to last year's effective rate may under-collect this year. Recalibrate annually.