10 Most Common Accounting Mistakes at Startups (and How to Avoid Them)
Picture this: a startup misclassifies transactions with a related company, VID catches it during an audit, and the resulting corporate income tax assessment runs into the tens of thousands of euros — easily enough to wipe out next year's entire growth budget. We see this pattern regularly: these aren't deliberate schemes or bad intent, but misunderstandings, rushed decisions, and not knowing the rules. In 2026, with VID more technologically capable than ever and tax regimes more complex, mistakes cost even more. Here are the ten we see most often.
Key takeaways
Most accounting mistakes at startups come not from dishonesty, but from rushing and missing deadlines — and VID catches them faster every year.
The costliest mistakes: mixing personal and business finances, missing documentation, and hiring an accountant only "after" starting to trade.
Most deadlines and penalties are precisely defined by law — but a few get confused with each other (like a filing deadline versus a payment deadline).
The simplest way to avoid most of these mistakes: bring in an accountant before issuing your first invoice.
Mistake 1: Mixing personal and business finances
This is by far the most common mistake among new business owners. When an SIA is freshly registered and cash flow is tight, the owner pays for business needs from a personal account, and vice versa — personal purchases from the company account. At first it seems harmless, but the consequences add up.
Real consequences:
VID can classify such transactions as deemed profit distribution and apply 20% corporate income tax
The accountant can't track which expenses are business-related and which are personal, so anything questionable gets treated as unrelated to business activity
At year-end it turns out the company's profit is artificially inflated (because personal expenses weren't deducted) — or the opposite: the personal account is short on funds
How to avoid it:
Open a separate business bank account before your first transaction — this is strongly recommended, so that company and personal payments never get mixed
If a payment from a personal account is unavoidable, file an expense reimbursement immediately with all receipts and document it in the books
Set yourself a fixed "salary" from the company and don't transfer money to your personal account haphazardly
Mistake 2: Putting off bookkeeping "for later"
Many new business owners think bookkeeping can be handled "when there's time" — usually right before the annual report is due. In 2026 this approach is especially risky, since VID has been using a taxpayer rating system since late 2023 that also evaluates how promptly returns are filed, and the system continues to expand.
Real consequences:
Late VAT return: a fine of up to €700 (source: the law "On Taxes and Fees"). Late payment interest of 0.05% per day on the unpaid amount — on a €10,000 debt, that's €5 a day, €150 a month
Late annual report: a warning or a fine of up to 400 penalty units (up to €2,000; Accounting Law, Article 42), and after 8 months of delay, the Register of Enterprises can start forced liquidation
Late employer report or information return: a fine depending on the length of the delay and the type of return (Articles 141 and 142 of the law "On Taxes and Fees")
How to avoid it:
Set calendar reminders for all deadlines — and don't lump them into one date, since they differ: VAT return by the 20th, employer report by the 17th, CIT return by the 20th. The actual tax payment (for all taxes combined, via the unified tax account) is due by the 23rd — a different deadline from filing, and the two are often confused
Use accounting software that automatically reminds you of deadlines
Hand off bookkeeping to a professional who takes responsibility for meeting deadlines
Mistake 3: Missing or inconsistent primary documents
The law requires every business transaction to have a supporting document — an invoice, receipt, contract, or act. Without a document, an expense isn't deductible, no matter how genuine it was.
Real consequences:
Expenses without documents = non-deductible expenses = higher profit = higher corporate income tax
You can't deduct input VAT without a proper invoice — the loss corresponds to the applicable VAT rate (usually 21%, but lower for goods under a reduced rate — for example, the 2026 food pilot project's 12% rate)
In a VID audit, the document is the only proof. Without it, the inspector assumes the worst-case scenario
How to avoid it:
Set up a digital document storage system — scan or photograph every receipt as soon as you get it
Keep documents for the statutory periods: supporting documents for at least 5 years, accounting registers and payroll documents for 10 years
Make sure every invoice contains all mandatory details: seller and buyer details, VAT amount, date, number
Mistake 4: Ignoring EDS notifications
VID regularly sends notifications through the "Messages" section of EDS. New business owners often leave them unread — "if it's important, they'll send a letter." That's a risky approach, because the law "On Taxes and Fees" states that a document sent electronically is considered delivered on the second working day after it's placed in the EDS system — regardless of whether the taxpayer has actually read it.
Real consequences:
An unread request to clarify data → no response by the deadline → automatic fine
An unread notice about a debt → late payment interest of 0.05% a day keeps accruing
An unread warning about a late return → a possible additional fine and enforcement measures
How to avoid it:
Set up EDS notifications to forward to your email
Schedule 15 minutes once a week (e.g., Fridays) to check EDS messages
Delegate EDS monitoring to your accountant, but keep your own access so you stay informed on anything important
Mistake 5: Misunderstanding micro-SIA dividend restrictions
A micro-SIA (share capital up to €2,799) is a popular choice for beginners, but this form comes with significant restrictions that many only discover when they try to pay their first dividend.
Key restrictions:
While share capital is below €2,800, only profit remaining after the mandatory reserve transfer can be paid out as dividends
At least 25% of each year's profit must stay in the company as a reserve
Real consequences:
If the company stops meeting one of the micro-SIA conditions (for example, a shareholder becomes a legal entity, or a shareholder also becomes a shareholder of another low-capital SIA), it must raise its share capital to €2,800 within three months (Commercial Law Article 185¹(6))
How to avoid it:
If you plan to pay dividends in your first year, register a standard SIA with €2,800 share capital
If you're already a micro-SIA and want to pay dividends, consult an accountant about your equity structure and what changes are needed
Mistake 6: Assuming every expense is a business expense
"I work from home, so my rent is a business expense." That logic is common but wrong. Not every expense that's somehow connected to your business is fully deductible.
Typically misclassified expenses:
The full rent of an apartment, when only one room is used as an office
The full cost of a family car, when it's also used for personal trips
Restaurant bills with no description of the business purpose
Gifts and souvenirs that exceed the representation expense limit
How to avoid it:
For any expense that could be partly personal, determine the business-use proportion and document it
For a home office, sign a separate lease agreement between yourself as the owner and the SIA, specifying the exact area and rent
Track the limit on representation and personnel sustainability event expenses — they can't exceed 5% of the previous year's gross payroll
Mistake 7: Paying salaries in cash without documentation
Since July 1, 2025, employers have been required to flag cash salary payments in the employer report. But even before that, undocumented cash salaries were one of the most common triggers for VID audits.
Real consequences:
Without a signed payment record or other proof, VID can treat the salary as unpaid and demand VSAOI and personal income tax, plus late payment interest
An employee can claim they never received the salary and demand it again through the courts
How to avoid it:
Switch to cashless salary payments — the simplest and safest method
If cash is unavoidable, prepare a signed payment record every time and flag it in the employer report
Flag in the employer report that work income was paid in cash
Mistake 8: Postponing year-end reconciliation
Many companies put off reconciling bank accounts, receivables, and payables until right before the annual report is due. The result: rushed mistakes, undiscovered discrepancies, and a missed filing deadline.
Real consequences:
Unreconciled balances with customers and suppliers → an inaccurate annual report → VID questions and a potential audit
A late annual report → fines and reputational damage
How to avoid it:
Reconcile bank accounts every month, not once a year
Send out receivables and payables confirmation statements at least quarterly
Start preparing the annual report in January, not April
Mistake 9: No written contracts for services received
Latvian law doesn't require a written contract for every service, but not having one creates problems in bookkeeping and tax audits — especially for marketing, consulting, and IT services.
Real consequences:
VID can question whether an expense is justified if there's no contract describing the service provided
In a dispute with a service provider, you have no proof of the agreed terms
For transfer pricing documentation (if controlled transactions with related parties exceed €250,000 a year), a contract is mandatory — as of 2026 the documentation process has been simplified (prepare within 12 months, submit only on VID's request), but the threshold and the requirement itself remain in force
How to avoid it:
Sign written contracts for services valued above €500 — this is a practical recommendation, not a legal requirement, but it significantly eases justifying expenses in a VID audit
Include at minimum: the parties' details, a description of the service, price, delivery timeline, and liability
Keep contracts together with invoices and handover acts
Mistake 10: Assuming you can find an accountant later
"I'll register the SIA, start trading, and find an accountant later." In our experience, this approach is behind many of the first VID inquiries we see from new clients. An SIA's obligation to keep books starts with its first business transaction — not with its first filing deadline.
Real consequences:
The first invoices are issued without VAT (if the company is VAT-registered) → corrections needed, possibly a fine
The first expenses aren't filed as reimbursements → they never show up in the books → profit is artificially inflated
The company instantly gets a poor score in VID's rating system if its first return is filed late or with errors
How to avoid it:
Bring in an accountant before issuing your first invoice — ideally right at registration
In your first consultation with an accountant, clarify: how to issue an invoice correctly, how to document expenses, what records to keep
Don't run a "trial period" without an accountant — even if it's just for a month
Frequently asked questions
Do all of these mistakes automatically trigger a VID fine?
Not necessarily — many only surface during an audit or while preparing the annual report. But the longer a mistake goes unnoticed, the more expensive it becomes to fix, since late payment interest (0.05% a day) keeps accruing continuously.
What's the difference between a filing deadline and a payment deadline?
Each tax has its own filing date (for example, VAT and CIT returns — by the 20th, the employer report — by the 17th), but the actual tax payment goes through the unified tax account by the 23rd regardless of the tax type. These two dates get confused often.
Can a micro-SIA pay dividends at all?
Yes — from the profit remaining after the mandatory reserve transfer: while share capital is below €2,800, at least 25% of annual profit must stay in the company as a reserve (Commercial Law Article 185¹).
Do I need a written contract for every service I buy for my company?
Legally — no, the law doesn't require one in the general case. Practically — yes, it's recommended for any larger or recurring service, since it significantly eases justifying the expense in a VID audit.
From what point do I need to start keeping the company's books?
From the first business transaction — not from the registration date and not from the first filing deadline. If the first invoice is issued before an accountant is engaged, the risk of mistakes rises quickly.
Is paying salaries in cash prohibited?
No, but since July 1, 2025, it must be reported to VID by flagging it in the employer report. Cashless payment remains the simplest way to avoid the extra administrative burden.
Conclusion
Accounting mistakes at startups are nothing unusual, but their cost can be disproportionately high. In 2026, VID is better equipped than ever to catch them — automatic data matching, the rating system, and stepped-up oversight make "maybe they won't notice" a dangerous strategy. Most of these mistakes are preventable with a single decision: bring in a professional accountant from day one.
Related reading: outsourced vs. in-house accounting and how to register a SIA in Latvia.
Legal sources and references
Law "On Taxes and Fees" — fines, late payment interest, when EDS notifications take effect
VID — Filing and Payment Deadlines — CIT return deadline (the 20th)
VID — Unified Tax Account — tax payment deadline (the 23rd)
Corporate Income Tax Law — the 5% limit on representation and personnel sustainability event expenses
ifinanses.lv — Simplified transfer pricing documentation requirements from 2026
Don't want to risk costly mistakes? Get in touch with Balansis — we'll help you set up your bookkeeping right from day one.
Last updated: September 2026. Information based on the law "On Taxes and Fees" with 2026 amendments, official VID materials, and Balansis client experience.
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