Does your business have a tax strategy in place?

Albert Einstein said “the hardest thing to understand in the world is income tax”, and there is no disputing that the UK tax code is long and complex. The UK is one of the world’s largest economies with companies based here trading in goods and services nationally and internationally.

There may well be further complexities arising following ‘Brexit’, especially in relation to indirect tax administration and reporting requirements for cross‑border trade with the EU.

The Office of Tax Simplification (OTS) was established in 2010 with the role of tackling the complexities of our tax system and making some of those key areas that will inevitably remain complicated, easier for us all to use. However, many local companies are still struggling with complex tax compliance and reporting requirements, and this creates risk. Adding to these challenges is the fact that corporates often have limited in-house resource available to assist with strategic tax planning.

With tax making front page news and far greater public scrutiny of companies’ tax affairs, local businesses should take stock of their tax strategy and governance procedures, as it doesn’t just apply to the ‘Googles’ and ‘Facebooks’ of this world.

Sound tax governance shouldn’t be adopted just because HMRC is checking, it needs to be adopted because it's good business practice! Businesses should consider:

1. Developing a tax strategy

It is recommended that companies formally document and implement a robust tax strategy that is aligned to the commercial objectives of the business. The strategy should cover the governance of specific business activities with ongoing tax operations in order to comply with both local and global requirements and the identification of tax reliefs that may be available.

2. Maintaining a tax risk register

Many businesses have procedures in place for a range of risk scenarios but historically none in relation to tax risks. The register should include the identification, monitoring and documentation of controls and processes surrounding tax risks arising from all tax processes, including compliance and financial reporting.

3. Carrying out a tax health check

Notwithstanding the formation of the OTS, UK tax legislation continues to grow in complexity and length. A health check covers the main principles of the tax code (VAT, corporate and employer taxes) to ensure that businesses are meeting their tax obligations.

This is especially true for those businesses preparing for sale; in our experience these areas can create difficulties in the sale process, including price chipping, delay of sale and, in the worst-case scenario, a deal collapse.

If tax issues arise as part of the review then it is important to rectify the situation in the most cost-effective manner.

We appreciate that businesses often have limited internal tax resource and if you would like to discuss any of the areas raised in this article, please do not hesitate to contact us.