Sound management of a company’s tax affairs is good practice, whatever the economic climate. However, it is when the economic climate becomes less settled that companies really see the benefits of careful management of their tax affairs.
Nobody likes writing large or unexpected cheques for tax.
Well-managed companies have predictable tax charges, giving certainty to investors and are able to minimise their cash tax payments.
Overall, through such good corporate governance, they protect their wealth and that of their investors.
This might sound daunting to some companies and tax law is certainly complex, but managing a company’s tax affairs actually boils down to a few basic rules.
Rule No 1
Have a plan for managing your tax
Some companies will have a detailed tax strategy that sets out a framework for dealing with their tax affairs, their approach to tax risk and how the strategy will be delivered.
This may be somewhat over the top for most companies but, even so, they need to plan how they are going to deal with such things as filing tax returns, making tax payments and dealing with HMRC and other tax authority audits.
Rule No 2
Don’t forget to do the easy stuff!
Companies who get into trouble with the tax authorities often do so for avoidable reasons, such as not filing a tax return, filing it late or making errors in returns.
Companies have systems and processes for dealing with such things as credit control, financial accounting and payroll, so having systems in place to deal with tax compliance should not be that demanding and will save you money in the long run.
Rule No 3
Deal with all taxes
Most companies pay taxes. Even if a company is loss making and pays no corporation tax, it will probably be accounting for VAT and, assuming it has employees, be dealing with PAYE and National Insurance Contributions.
There are other taxes such as stamp duty land tax or the landfill tax, that may be relevant to some companies. As a result, all companies need to be able to deal with all relevant taxes.
It is important in the risk management of a company that the right people are accountable for managing appropriate taxes.
Rule No 4
Claim your entitlement
Many companies pay too much tax simply because they fail to claim all of the tax deductions and reliefs that they are due.
For example, is your company claiming all of the capital allowances to which it is entitled?
Could your company claim “enhanced” deductions (tax relief of more than 100?per cent of the expenditure) in respect of research and development activity or expenditure on environmentally-friendly capital items?
If cash is tight, it is even more important that the post tax cost of an asset is correctly calculated.
Rule No 5
Manage tax cash flow
Companies need to plan their cash flow to take into account payments of VAT, PAYE, corporation tax and so on. It is important, however, to make sure they do not pay too much, too early or suffer interest or penalties for paying too little or too late.
Therefore, appropriate controls and processes need to be put in place to ensure that tax liabilities are correctly calculated throughout the year, not just at the year end.
Rule No 6
Think about the tax implications of the one-off events
Non-recurring and less commonplace events such as acquisitions and disposals of companies and assets such as land and buildings or intellectual property, or refinancing businesses, can present the most complex tax issues.
However, they also present the greatest opportunities for tax planning.
There may be more than one way of structuring a transaction to meet a commercial objective, but one approach may result in less tax to pay now, or in the future, than the other.
It is important to talk to advisors about the tax aspects of such one-off events – see Rule 8 below.
Thinking about the tax implications at the last minute is rarely as effective as good forward planning.
Rule No 7
Speak to HMRC
It is important for companies to have regular communication and a dialogue with the tax authorities. HMRC is keen to facilitate this and such a dialogue can help companies to reach agreement of their tax affairs on a timely and cost-efficient basis.
Rule No 8
If in doubt, speak to a tax specialist
Tax law and compliance becomes ever more complex and most companies lack the in-house expertise to identify and deal with the tax aspects of their businesses.
Having an external tax advisor to whom you can speak in such situations can help avoid tax problems and further costs in the future.
Resilient businesses focus upon many basic principles to ensure there is no value or wealth leakage.
Tax is a key aspect of this and one which needs to be managed effectively.
To ignore a company’s tax affairs, or simply a failure to review and check that the company ethos around tax is right, could prove costly.